CPI – March 2023
While overall CPI inflation has eased below 6% in line with expectations, the persistently high cereal inflation and milk inflation are concerning. Core inflation has also moderated but it still remains high at 6.1% in March 2023. We expect CPI inflation to continue to moderate in the months to come supported by the base effect and some waning of the pent up demand. The rate hikes done so far will also aid in containing CPI inflation. Stable outlook for Rupee is the other supporting factor for domestic inflation. Having said that, the impact of unseasonal rains in March on Rabi crops, especially wheat could pose an upside risk to the food inflation. The risk will get compounded if the monsoon turns unfavourable. Additionally, any major rebound in global crude oil prices is the other risk for India’s CPI inflation.
We maintain our average CPI inflation forecast for FY24 at 5.1% with Q1 print at 4.8%. With CPI inflation expected to moderate in the coming months and an improvement in the household’s inflationary expectation, we do not expect further rate hikes by RBI in FY24. With average CPI inflation expected around 5% in FY24 (higher than RBI’s target of 4%) and GDP growth around 6%, we do not expect RBI to start cutting the rates in FY24.
IIP – February 2023
While there has been slight improvement in IIP growth for February, output of some export-intensive sectors like Textile, Apparel and Leather products continue to bear the brunt of the global deceleration of demand. Moreover, contraction in the output of consumer durable goods for the third straight month is concerning.
Going ahead, while overall industrial sector growth is likely to improve, we need to remain cautious of the global slowdown and uncertainties. While overall consumption is likely to improve, we could see some waning of pent-up demand in the months to come. Recovery in investment demand will be gradual in midst of the economic uncertainties.
