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Favourable base in food inflation drives headline lower

ICICI Securities 7 Mins 18 Nov 2022

Key readings

  • CPI inflation for October came in lower as per market expectation at 6.77% compared to 7.41% in September 2022
  • The fall in inflation was led by food inflation with Consumer Food Price Index (CFPI) at 7.01% in October vs. 8.60% in September. Core inflation was also down marginally to 5.94% vs. 6.05% in the respective period
  • Within food inflation, vegetable item was the major driver with inflation at 7.77% in October 2022 against 18.18% in September 2022. Other items that helped lower inflation was oil & fats (negative inflation for the first time on expected lines due to fall in prices and favourable base), pulses at 2.78% vs. 3.05%, sugar at 0% vs. 1.6%
  • However, the fall in food inflation is primarily attributed to base effect. Sequentially, there was a rise of 1.08% in CFPI contributed by vegetables (sharp MoM rise of 4.12%). All items other than oil & fats and fruits saw an MoM rise
  • Sequentially, prices of most food items saw an upward movement. Cereals inflation with almost 10% weight in CPI remain in double digits at 12.08%. The outlook, however, is better on prospects of arrival of Kharif harvest and good progress for the Rabi crop
  • Core inflation overall has been very sticky around 6.0% levels since last one and a half years. In October 2022, similar to food inflation, base effect (particularly in transport & communication) led to lower print. Sequentially, all items saw a marginal rise on a month on month basis
  • Within core inflation, prices of clothing & footwear rose 10.2% YoY (same as last month), housing at 4.6% YoY (same as last month), household goods and services at 7.6% YoY (same as last month), health at 5.7% (up 10 bps from September), education at 5.8% YoY (+ 5 bps over September) and personal care and effects at 7% (+ 21 bps over September). Higher personal care and effects was driven by gold and silver. Gold prices have increased further in November. On the other hand, deceleration in core was seen in recreation and amusement at 6.1% YoY (6.3% in September) and transport & communication at 4.6% YoY (5.4% YoY in September). Higher core inflation can be explained by higher domestic demand and incomplete pass-through of international commodity prices into retail prices. Given the demand outlook and festival season sales, core inflation is likely to ease gradually


  • While the current CPI data print does not change the rate hike outlook in a meaningful way, lower magnitude of rate hike by the US Federal Reserve may provide some comfort to the RBI. RBI is expected to hike rates by 35 bps in its upcoming December monetary policy meeting

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