Consumer Price Inflation: Consumer price inflation is easing, core inflation remains sticky: UBS report
CPI inflation is a measure of change in retail prices of goods and services that consumers pay when they buy them. Core inflation on the other hand is a measure of how the prices have increased in the country except from food and energy sectors.
Headline CPI inflation decelerated to 6.9% year on year (YoY) in November, below market expectation (7.1% YoY). However, it is still above RBI’s upper tolerance band of 6%. Price pressure in rural areas in Nov (7.2% YoY) was higher than in urban areas (6.7% YoY). Core inflation also continued to remain sticky at 5.8% YoY largely on cost push pressures. Even as the inflation trajectory evolves close to RBI’s forecast this year at 6.8% and 5.8% in Dec-20 and Mar-21 quarters, we expect CPI inflation to be c30- 50bp above RBI’s average forecast of 4.9% in H1 FY22. MPC has eased repo rate by 115bps cumulative in 2020 YTD. Going forward, we expect the central bank to keep repo rate on hold in the rest of FY21. We think any room for further policy easing (25bp) will be dependent on either growth surprising significantly on the downside and/or inflationary pressures moderating significantly over the coming months on lower food prices,” the report said.
CPI in India has always increased whenever there is a jump in food or fuel prices. Core inflation has remained very volatile in India historically, but is crucial in measuring the undercurrents and predicting inflation trends going head.
“Core inflation (CPI ex food and fuel), though sticky, eased marginally by 5bps to 5.8% YoY in Nov. Inflation in the transport & communication segment remained largely similar to the previous month (11.1% YoY in Nov). Excluding the two major energy components (petrol & diesel), the calculated refined core CPI inflation also eased to 5.6% YoY (vs. 5.7% YoY in Oct). Looking at the breakup, personal care & effects category continued to remain elevated (12% YoY in Nov) due to additional costs associated with maintaining social distancing requirements and still high gold prices,” the report said.