India’s headline consumer price inflation came in significantly lower than consensus expectations in June. On a sequential basis, the headline CPI rose 0.58, slight acceleration from May’s 0.51 percent. The downside surprise was mainly because of a milder-than-expected rise in core CPI. Core CPI rose 0.23 percent sequentially in June after rising by an average of 0.52 percent sequentially in the past five months.
Among the important components that dampened the core inflation were decline in housing costs, personal care and effects, and healthcare costs. On the contrary, food prices recorded a rise on 1.01 percent sequentially in June, led by a seasonal rise in the prices of vegetables and poultry. The risks to inflation in the months ahead continue to be skewed to the upside, noted ANZ in a research report. Elevated crude oil prices, a rise in MSP for summer crops, and the likelihood of a fiscal slippage constitute these risks.
“We estimate that the increase in MSP will lift average annual inflation by 25-30bps in FY2019 (fiscal year ending March 2019). Our current forecast of 5.00 percent in FY2019 does not incorporate this increase in the MSP”, added ANZ.
Thus, in spite of below expected print in June, the rate hiking cycle has not run its course. The central bank is expected to hike rate one more time by 25 basis points in the policy repo rate in August, stated ANZ.