CPI Remains Stable…Upside Risks to Food Inflation Emerge

The CPI based inflation for the month of April 2024 was reported at 4.83%, largely unchanged as compared to the levels reported in the preceding month. These are the lowest numbers in the last 10 months. The CPI inflation during the year ago period was reported at 4.70%. The headline numbers remained well supported by the subdued core inflation, whereas there was an uptick witnessed in food prices. In the wake of rise in food inflation, the easing of fuel inflation was critical in keeping the headline numbers in check.

The Consumer Food Price (CFP) inflation for Apr’24 was reported at 8.70%; an uptick as compared to the inflation number of 8.52% of the preceding month. The momentum was seen losing steam over the last few months, but again picked-up speed in Apr’24. The weather-related vagaries of heatwave impacted the prices of the food basket. The impact was particularly pronounced on the prices of perishables – fruits and vegetables. The weather-related concerns may continue to pose an overhang with the current month being witness to unseasonal rains across the country. The inflation for Clothing, Fuel & Light, Housing and Miscellaneous was reported at 2.85%, -4.24%, 2.68% and 3.54% respectively.

Oil prices have been range-bound in the recent past except for the brief uptick in prices on account of the escalation of the Israel-Iran conflict. Briefly, Brent moved up beyond the US$ 90 per barrel level fearing some disruption of oil supply due to a prolonged war in the Middle East. At present it looks like both Israel and Iran have concluded their operations and therefore, there is greater stability in prices. A sanguine outlook on oil prices bodes well for headline inflation numbers; as, any adverse movements have immediate as well as severe second round impacts.

Core Inflation
The core inflation (ex. food and fuel) maintained the trend and eased further in the previous month. The core inflation came in at 3.23% for Apr’24 as compared to 5.19% during the year ago period. The core inflation has now eased for 10 consecutive months and clocked the lowest level in the current series. The inflationary pressures have remained largely subdued both in manufacturing as well as services-oriented industries. The percolation of interest rate hikes is visible in core inflation. At the current juncture, in a high interest rate environment, the core inflation is not expected to throw any negative surprises.

The headline inflation numbers were largely on expected lines, with support emanating from easing of domestic fuel prices whereas upside risks are seen in food inflation. The weather conditions may continue to exert pressure on food prices. Even as the heatwave situation has not yet completely abated, the unseasonal rains pose further risks to prices of perishables. The risks to inflation will lead to RBI continuing to be on guard.

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