India's underlying inflation pressures rising despite softer YoY core reading: Report
Mumbai, September 15
Underlying inflation pressures in India may be stronger than indicated by the year-on-year numbers, with the recent monthly trend in core inflation pointing to faster price increases, according to a report by ICICI Bank Research.
Core inflation excluding gold and silver rose 0.46 per cent month-on-month in August, broadly in line with the average monthly increase of 0.42 per cent recorded over the previous five months.
The report said that if the recent monthly trend is annualised, underlying core inflation would be "much higher than what the YoY number shows".
On a year-on-year basis, core inflation rose to a 15-month high of 4.2 per cent in August from 3.9 per cent in July, largely due to higher gold and silver jewellery prices. Excluding gold and silver, core inflation stood at 2.9 per cent, up from 2.7 per cent in July.
The report said higher commodity prices are increasingly feeding into the prices of goods and services, with the impact visible across several components of core inflation.
Information and communication prices recorded the sharpest sequential increase, rising 1.4 per cent month-on-month. This was driven by a 2.1 per cent increase in mobile tariffs, along with higher prices of mobile handsets and laptops.
Transport prices, excluding fuels, rose 1.5 per cent month-on-month in August, compared with 0.4 per cent in July. Prices of automobiles, bicycles, tyres and other transport equipment increased, along with transport fares. Restaurant prices also rose 0.8 per cent during the month.
"Hence, there is a mix of cost push and demand-pull inflation seen in different items," the report said.
The broader inflation trend also showed rising price pressures. Retail inflation increased to a 20-month high of 4.82 per cent in August from 4.44 per cent in July, while food inflation rose to 6 per cent and energy inflation to 5.2 per cent.
According to the report, the share of Consumer Price Index (CPI) items recording inflation above 4 per cent has increased to around 37 per cent from 16 per cent in January.
Within food and beverages, around 49 per cent of items are now recording inflation above 4 per cent, compared with 31 per cent in January.
ICICI Bank Research expects higher global energy and commodity prices, along with deficient rainfall, to keep inflationary pressures elevated in the second half of the financial year.
It expects headline inflation to average around 5 per cent in FY27, while core inflation excluding gold and silver is expected to move closer to the 4 per cent target from December onwards.
On monetary policy, ICICI Bank Research said the Monetary Policy Committee (MPC) could raise the repo rate as early as October, citing the revised growth and inflation outlook and abundant liquidity.
The report expects a total rate hike of 50-75 basis points in the current cycle, with the extent of tightening likely to depend on the movement in energy prices.
— ANI
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