CPI Data Reveals Comman Man Hit By High Food Prices, Inflation To Remain Sticky

Consumer price inflation data for Sept 2022 at 7.41% reveals inflation remains sticky, particularly in food items. Food inflation was the main culprit behind rising CPI. In fact, food inflation surged to 8.6% in Sept 2022, pushing up the overall CPI number, thanks to a jump in cereal prices.

In fact, the worry is that the trend is unlikely to change anytime soon and we may see the RBI once again act, by hiking interest rates say analysts.

Vivek Rathi, Director-Research, Knight Frank India, says: "At 7.41%, consumer inflation in the economy continues to remain defiant due to increasing food prices. The future trajectory of inflation is on the upside, pressurized by import inflation arising from sharp rupee depreciation. Price pressure on import of crude oil shall have a cascading impact on other items of the basket too. Additionally factors such as transmission of input costs and pick-up in consumer demand supported by service sector recovery would further add to inflationary risk in the coming months. With the inflation level consistently remaining ahead of the 4% CPI target level of the RBI, an out of turn monetary policy rate action remains a possibility."

There is a high possibility that the trend of elevated inflation will stay. According to Madhavi Arora, Lead Economist, Emkay Global Financial Services, high-frequency mandi prices indicate that prices of perishables could increase going forward as well.

"However, global commodities (ex-energy) on an average are easing, which, if sustained, should act as a moderating influence on headline inflation. But watch out for near-term offsetting factors which may come from food owing to unseasonal rains, sticky motor fuel prices, and higher kerosene prices, INR weakness etc. With domestic demand fairly resilient so far, core CPI pressures may remain reasonably sticky in near-term sequentially. That said, lower imported inflation on net and base effect should directionally still imply lower inflation on YoY basis in 2HFY23 vs 1HFY23. But this will unlikely to derail the RBI's tightening path as inflation still remains elevated," Ms Arora says.

Ritika Chhabra, Economist and Quant Analyst, Prabhudas Lilladher says there is a possibility of reversal in food prices going forward.

"The CPI for the month of September rose by 7.41% y-o-y, slightly higher than the consensus estimate of 7.3%. High food prices, esp cereal prices contributed the most behind this jump in CPI. Cereal prices jumped by 11.53% y-o-y mainly led by rice and wheat. A decline in acreage under rice and pulses and erratic rains are weighing on food prices. However, we might see some softening in food prices in October as a result of sequential reversal in food prices," she said.

Overall, analysts expect the RBI now to stay on course to hike rates once again in the month of December. While a 25 basis hike is a possibility, one can now also factor in a higher interest rate hike of 50 basis points. The RBI has already hiked the repo rates by 190 basis points, taking the repo rate to 4.90%. Banks have already hiked lending rates and some have hiked deposit rates as well. Though the hike in deposit rates has been much slower.