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CPI September 2018 review
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CPI data was released last week and the inflation was at 3.77% in September compared to 3.69% in August rising only by 8 basis points, against forecasted level of 4%.  The minor increase in inflation in September was mainly caused by higher fuel prices and an unfavorable base effect change.

Inflation may increase on the back of rising crude prices and weaker currency. Food inflation increased for the first time in 4 months and cabinet’s decision to hike MSP (minimum support price) support for rabi crops is expected to further increase the food inflation but keep it under the overall range in the coming months when the actual effect would start taking place. The usual effect of winter disinflation would also be a major factor in contributing to the food inflation.

The inflation data brought good news as it was lower than but closer to the RBI benchmark of 4%. It also reaffirmed MPC decision to keep the interest rates at the same level and now seems unnecessary to further hike rates in the near future by RBI.  The pressure building up due to fear of rise in rates on the bond markets would ease up as well.

Group wise change in the CPI inflation data

CPI Groups

Sep-18 (%)

YoY % Change

QoQ % change

Food

0.2

-2.6

-0.5

Alcoholic beverages and tobacco

4.7

0.2

-0.9

Clothing and footwear

-1

-1.5

-0.3

Housing and household utilities

3.1

0.1

0

Household contents and services

-0.1

0.9

0

Health

0.8

-1.2

0.4

Transport

5.6

3.6

3.6

Communication

-5.4

-0.1

-0.5

Recreation and culture

0.4

1.4

1

Education

-5.3

-7.5

-0.1

Miscellaneous goods and services

2.4

-0.1

-0.7

 

The highest decline was 7.5% YoY, seen in the inflation from Education group due to major decline in inflation from tertiary and other post school education. The highest increase was 3.6% QoQ, witnessed in the transport group due to rise in fuel prices and transport services by private companies.

We expect the inflation to move closer to the target level of 4% in the coming months due to constant upsurge in crude prices and the still awaited effect of MSP’s.

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