June CPI Offers some comfort, but risks persist - CPI - June'22 - Acuité Ratings

Q1 FY23 average inflation stands at 7.3% vs. RBI forecast of 7.5%

Headline CPI inflation eased marginally to 7.01% YoY in June-22 from 7.04% in May-22 partly aided by continued favourable statistical base of the previous year and full impact of the reduction in excise duty on retail fuels coming on board. While the month of Jun-22 marked the sixth consecutive month of CPI inflation remaining way above the 6.0% policy tolerance threshold, Q1 FY23 print has averaged at 7.28%, encouragingly lower than RBI's expectation of 7.50%. On sequential basis, the print eased to 0.52% MoM from 0.94% with moderation recorded in the categories of fuel, food, and core inflation.

Acuité expects headline CPI inflation to average at 6.7% in FY23 with an assumption of crude oil averaging at USD 110 pb in FY23. From policy perspective, Acuité expects an incremental 75 bps hike in repo rate between Aug-22 and Dec-22. This will take the repo rate to 5.65% i.e., 50 bps above the pre-pandemic level. Post Dec-22, RBI could take a pause and reassess the evolving domestic growth-inflation scenario, in the global context.

Says Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, "While the continuing rupee depreciation has raised the risks of imported inflation, several steps taken by the government to rein in prices of essential commodities and lately, by RBI to stabilise the rupee may help to address such risks. Overall, the current picture of inflation raises hopes of a gradual moderation going forward with Q1 average CPI inflation already lower than RBI's forecast by 20 bps. This has the potential to slow down the pace of rate hikes in the current year."

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Source : Equity Bulls

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CPI June2022 Q1FY23 AcuiteRatings