Food basket weighs on headline numbers…

The CPI based inflation moved higher for the month of Jun’23 and was reported at 4.81%, after easing for 4 consecutive months. The inflation for the preceding month and the comparable year ago period was 4.31% and 7.01% respectively. The surge in food prices was one of the key contributing factors to that led to rise in headline numbers. The core inflation remained largely stable.

The Consumer Food Price (CFP) inflation for Jun’23 was reported at 4.49% as compared to 2.96% for the preceding month. The overall food basket, expect for oil and fats, witnessed price pressures. The food inflation remained strongest in cereals, egg, milk products, pulses, and spices. The MoM momentum was strong in vegetables prices, with the sharp rise in tomatoes hogging the limelight. The food prices continue to be the biggest risk to headline numbers as seasonal vagaries impact the food articles’ output. The disinflation in oils and fats provided a cap to food inflation. The inflation for Clothing, Fuel & Light, Housing and Miscellaneous was reported at 6.19%, 3.92%, 4.56% and 5.19% respectively.

Core Inflation
The core inflation (ex. food and fuel) remained largely stable. The core inflation came in at 5.12% for Jun’23 as compared to 5.05% in the preceding month. The core inflation appears to have been stabilized below the 6% mark. The clothing and footwear inflation continued to ease; housing prices too reported fall in inflationary pressures; factors constituting miscellaneous inflation too reported loss in momentum. The broad-based easing in momentum coupled with the lagged impact of rising interest rates on demand and easing of input costs may cap any upward surprises from core inflation.

The volatile nature of food prices and its impact on the headline numbers have again come to the fore. The impact of seasonal vagaries in prices of perishable articles may continue over the current monsoon season, keeping the headline inflation trending higher over the next couple of months with an upward bias. At the current juncture, the impact of volatile food prices is not expected to be so severe as to warrant a monetary policy response. We expect RBI to be focused on the core inflation amidst a positive interest rate scenario. The core inflation is expected to be stable, owing to the factors discussed earlier in the report.

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