Unfavorable Base Effect Propels CPI Inflation In Jan’22: Emkay Global

CPI inflation expectedly surged 6.01% in Jan'22 (Emkay 5.95%, Consensus 6%) from 5.66% (revised) in Dec'21, owing to low base effects of last year.

"This was reckoned by RBI governor in his speech today. He indicated that the surge in inflation may be due to statistical reasons (unfavorable base), which is not a reason to panic. The sequential moderation was seen in prices of food, except cereals and fuel, while housing and miscellaneous categories picked up pace. Within food, major easing was seen in vegetables (-7.4% MoM), oils and fats (-1.6%) and fruits (-0.8%). Mandi prices indicated a sharp fall in prices of vegetables in Jan'22 and even in Feb'22 so far. The impact of duty reduction on palm/edible oil was evident in Jan'22; it may continue to ease further. Energy inflation eased further for the third consecutive month, with flat sequential gains," Emkay Global has said in a report.

Core inflation eases, but momentum picks up

Core inflation (ex food, fuel and intoxicants) moderated to 6.2% (6.31% prior). Jan'22 witnessed housing rentals picking up pace, in line with seasonal trends (0.7% MoM vs. 0.5% MoM in Dec'21). T&C reported a healthy sequential gain of 0.58%, led by the spillover of telecom tariff prices. "Within the miscellaneous category, momentum improved for education (0.18%) and health (0.47%), while it slowed for recreation activities (0.37%). We expect core inflation momentum to ease ahead, as the impact of telecom price hikes fades and a negative output gap limits the full pass-through of high input costs. However, the impending fuel price increase may put pressure ahead. We see core inflation peaking and heading to an average of 5% in FY23," Emkay Global has said.