At 3.54%, India’s CPI inflation slipped to the lowest level seen in nearly 5 years in Jul-24, amidst a highly favorable base at play from last year
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The annualized moderation however masks the strong sequential pressures that remained in place – owing to lack of adequate progress in monsoon that kept vegetable prices inflated, as well the new dynamic of hike in telecom tariffs by key players coming on board. The divergence in momentum and direction of annualized inflation is likely to remain in place in Aug-24 as well. Beyond Aug-24, we see CPI prints reverting to the 4.5-5.0% range, with two key trends on watch – i.e., One, with core inflation likely to have already bottomed out already in Jun-24, a mildly ascending trajectory is expected to play out. Two, the extent to which a pick-up in monsoon performance and Kharif sowing douse food inflation pressures. We hold on to our FY25 CPI forecast of 4.5%.
With comfort on growth in the backdrop, we continue to expect the MPC to maintain its anti-inflation posture until there is clarity on food inflation risks. A pivot towards easing is likely in Q3 FY25. We foresee 75 bps of cumulative monetary easing in this cycle, out of which, 50 bps could be delivered in H2 FY25.