India’s CPI inflation cooled-off sizeably in Sep-23, to a 3-month low of 5.02%YoY compared to 6.83% in Aug-23.

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Oct 12, 2023

QuantEco Research || Sep-23 CPI inflation - A reprieve with riders

Broadly, three factors enabled the Sep-23 inflation descent – 1) Complete normalisation of tomato prices, with the spike over Jul-Aug getting fully reversed 2) Rs 200 reduction in price of LPG cylinder announced end Aug-23, coming on board fully and 3) An unanticipated and non-seasonal correction in housing index. While the H2 FY24 trajectory of CPI inflation is expected to remain broadly ranged between 5.0-6.0%, risks appear to be stacked on the upside. The impact of uneven domestic monsoon on Kharif crop yields, low reservoir levels for Rabi sowing, El Nino possibly weighing on global food output and the more recent Israel-Hamas tensions keeping volatility in crude prices intact, remain under close observation. For now, we hold on to our FY24 CPI forecast of 5.5%, with RBI’s rate easing cycle expected to commence in Q2 FY25.