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India's New CPI Series to Push Inflation Higher, Says Nomura Report

Nomura forecasts India's inflation will gradually increase following the transition to a new Consumer Price Index series in February. The updated series, based on a 2024 base year, will increase weights for core categories while reducing the impact of volatile food prices. The report notes a growing divergence, with core inflation rising partly due to gold and silver prices, while underlying measures remain stable. Nomura expects the RBI to pause its rate cuts in February before a final reduction in April, as the inflation uptick is seen as largely technical.

Key Points: New CPI Series to Raise India's Inflation: Nomura Analysis

  • New CPI series launches in February 2024
  • Updated weights favor core items over food
  • Headline inflation to rise 0.3-0.4 percentage points
  • RBI expected to pause in February, cut in April
3 min read

Nomura projects inflation to "drift gradually higher" in new CPI series

Nomura projects India's inflation to drift higher with new CPI series in Feb. Report details core inflation trends and RBI policy outlook.

"drift gradually higher in the coming months - Nomura report"

New Delhi, January 14

India's inflation trajectory is set for a technical shift as a new Consumer Price Index series prepares to debut in February, marking the end of the outgoing 2012-based series that closed December with a modest rise. Nomura, in its latest report, expects CPI inflation to "drift gradually higher in the coming months" following the transition to a 2024 base year. This overhaul includes updated weights that prioritise core categories over staple foods and introduces significant methodological upgrades to data collection.

According to the Nomura report, December's headline inflation rose to 1.3 per cent year-on-year from 0.7 per cent in November. While this figure fell below consensus expectations, the uptick was driven by easing food price deflation and the fading of favourable base effects.

Food and beverages continued to see deflation by 1.8 per cent, though this was an improvement from the 2.8 per cent decline recorded in the previous month. Subdued prices for vegetables, fruits, and pulses kept the overall headline figure underwhelming despite price increases in eggs and meat.

The report highlights a growing divergence between headline and underlying inflation. Core inflation rose to 4.6 per cent in December from 4.3 per cent in November, but the report notes this was "primarily owing to higher gold and silver prices." Together, these precious metals added approximately 0.8 percentage points to the headline CPI and 1.8 percentage points to core CPI.

Excluding these volatile effects, core inflation remained stable at 2.4 per cent, while "super core" inflation, which excludes commodities like gold, silver, petrol, and diesel, slid to a 3-month seasonally adjusted annualised rate of 0.9 per cent.

The upcoming February 12 release of the new CPI series is expected to result in a "largely technical" rise in headline inflation of about 0.3 to 0.4 percentage points. The new series will reflect the 2023-24 Household Consumption Expenditure Survey, increasing the weighting for core items while reducing the impact of staple foods like cereals and vegetables.

Nomura stated that this change "should lower the volatility of headline inflation, as food inflation has been the primary driver of the large fluctuations." The update also expands the basket to include streaming services, consumer tech, and app-based transport.

Regarding monetary policy, Nomura believes the Reserve Bank of India (RBI) will prioritise policy transmission and liquidity management in the immediate term. Following a 25 basis point cut in December to 5.25 per cent, the report suggests "the easing cycle is not over," even as the focus shifts.

Nomura expects the RBI "to pause in February with a final 25bp cut in April, taking the terminal rate to 5.00%," as underlying inflation is likely to stay benign despite the technical rise in headline figures.

- ANI

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Reader Comments

P
Priya S
Reducing weight for cereals and vegetables? That's worrying. For my family, food is still the biggest monthly expense. A "technical" rise might not feel technical when it impacts loan EMIs and savings. I hope the RBI keeps the common person in mind.
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Aman W
The core inflation staying stable at 2.4% (excluding gold/silver) is the real story. Headline numbers grab attention, but this underlying trend is positive. Makes sense for RBI to consider more rate cuts to boost growth.
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Sarah B
Interesting analysis. The methodological upgrades in data collection are crucial. Better data means better forecasting. Nomura's point about lower volatility in headline inflation due to reduced food weight is a key takeaway for investors.
V
Vikram M
Gold and silver adding so much to core inflation! That's our Indian love for jewellery impacting macroeconomics. 😄 On a serious note, hope the new series gives a clearer picture without these distortions.
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Karthik V
While I appreciate the need for updated metrics, I have a respectful criticism. Announcing this change just before the budget and possible rate cuts feels a bit disruptive. Clarity and stability in economic messaging are also important for market confidence.
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Nisha Z
As a homemaker, I see vegetable prices

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