India’s June retail inflation accelerates to 7.01% y/y

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BENGALURU — India’s annual retail inflation accelerated to 7.01% in June from 6.26% a year earlier, and remained above the central bank’s tolerance band of 2%-6% for the sixth month in a row, government data released on Tuesday showed.

Analysts in a Reuters poll had predicted annual inflation of 7.03% in June compared with 7.04% in the previous month.



“June CPI at 7% YoY was in line with expectations. There is a drop in sequential seasonally adjusted momentum in headline items, particularly transport costs (due to excise cuts).

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“Sequential momentum remains concerning in household goods, clothing and footwear and recreation. Abundant rains and recent international commodity price correction should temper inflation momentum in the coming months.

“However, rupee remains a key risk to inflation and rates outlook. Currency defense through import restrictions and shoring up of forex capital is likely to continue.”


“June headline CPI of 7% Y/Y, flat from May, was in line with our expectation. Momentum in both food prices and in core inflation has eased from the upside surprise in April. Importantly, real time prices of various food items such as edible oils, pulses, wheat and certain vegetables have been falling so far in July.

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“If this continues, it should aid near-term CPI prints to move lower. In the medium term, pass-through of input prices, crude oil price, services price momentum, supply chain pressures, global growth (slowdown) and domestic private consumption demand will also define the inflation trajectory.” SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

“CPI inflation in June was in line with expectations at 7%. We have been expecting inflation to remain around the 7% handle for the rest of 1HFY23. Food items continue to see an upside in price momentum, in line with the seasonal trends. Core inflation was flat at 6.2% with price momentum softening slightly from last month.

“Overall, the June inflation print should keep the RBI on course with the rate hikes without new causes for concern. Inflation should gradually decline in 2HFY23. We continue to pencil in repo rate hike of 35 bps in the August policy and RBI should stay on course to reach 5.75% by end of CY2022.”

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“A third consecutive print of 7.0%-plus (bang in line with our expectation of 7.01%) brings forth the challenge ahead. Major upward adjustment in prices of subsidized LPG (liquefied petroleum gas) and kerosene has virtually negated the impact of reduction in pump prices of petrol and diesel following the excise tax cut.”

“The June print hints at RBI continuing to remain aggressive over the next few meetings with its policy rate action.

“We believe that the central bank’s effort to contain inflation needs to focus both on engineering a growth slowdown and also try and ease the depreciation pressure on the currency which is now in touching distance of 80/dollar at a time the dollar index has been strengthening.”

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“Inflation remained almost flat in June at 7% on the back of elevated food prices while fuel costs provided some respite as the impact of excise duty cuts seeped in.

“While both brent crude and vegetable oil prices have come down globally, the critical bit for food inflation will now be the performance of the monsoons, which so far is showing encouraging signs in terms of distribution and sowing progress.

“Inflation could remain close to 7% for the next two months before settling to 6%-7% range during the third quarter of the year. The RBI is likely to hike again by 25-35 bps in the August policy.”


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“Upside risks to India’s inflation appear to be easing as global commodity prices correct amid concerns over the global slowdown and as the rise in domestic food prices begins to ebb.

“With today’s print, Q1FY23E CPI inflation is undershooting RBI’s projected inflation of 7.5% by 22 bps. We see incremental upside risks to CPI inflation easing off, with FY23E CPI at 6.5% with risks balanced vs earlier expectations of upside risks of 20-30 bps.

“We see the Monetary Policy Committee (MPC) take comfort from these data points and expect another 75 bps hike in the policy repo rate in FY23E with a 25-35 bps rise during the August 2022E meet.”


“The CPI inflation broadly remained steady around 7% bringing the 1QFY23 average to 7.3%, marginally lower than RBI’s projections of 7.5%. Nonetheless, inflation is expected to remain elevated with only a gradual descent through the rest of the year.

“Commodity prices provide some relief, the gains will be limited due to the weakening rupee. We expect the MPC to continue to frontload policy rate hikes especially as global monetary tightening continues. We expect 85-110 bps of additional rate hikes in the coming few meetings to bring the Repo rate towards 5.75-6% by end of FY23.” (Reporting by Rama Venkat, Nallur Sethuraman and Chris Thomas in Bengaluru; Editing by Vinay Dwivedi)



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