India CPI March 2019 Update - Rises to 2.86%

Headline number 
CPI accelerated to 2.9% in Mar’19 as against 2.6% in Feb’19 and market expectation of 2.8%. 

Driven by food inflation...
Food price index has turned positive to 0.3% YoY vs. -0.7% in Feb’19. The prices of urban vegetable inflation rose by 10% YoY. Disinflation in the prices of vegetables is declining at a faster pace. However, inflation in the prices of fruits and pulses continue to remain negative. Notably, as food inflation turned its trajectory, we expect the trend to continue to rise, going ahead. 

Rise in Crude prices taking its toll...

  1. Fuel and light inflation increased to 2.4% in Mar’19 vs. 1.2% in Feb’19 owing to rise in the crude prices. There exists a room for modest upside in fuel inflation going forward.
  2. Clothing and footwear inflation declined to 2.6% from 2.7% in Feb’19. However, we envisage a modest up-tick in the near-term with expected rise in rural demand, going forward. 
Core Inflation Moderates...
Core inflation declined on MoM basis to 5% in Mar’19 from 5.3% in Feb’19. Looking ahead, we expect core inflation to moderate further on account of sluggish demand owing to growth concerns  
Way Forward...
Headline inflation continued to remain at lower than the target range of 4% (+/- 2%). The RBI in its recent monetary policy meeting retained “neutral” stance and cut the key rates by 25bps on expected lines. Even though inflation is expected to remain benign until 1HFY20 at 3%, we feel that a surge in food inflation is an upside risk to inflation on account of El Nino and below normal monsoon forecasts, which can prompt the RBI to revisit its monetary stance.  

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