India July 2019 CPI analysis – Expect another rate cut in Oct’19


India’s Retail or consumer price index (CPI) inflation fell to 3.15% in Jul’19from 3.18% in June, Due to softening fuel and light prices, even as overall food prices moved up, as per data released by government on Tuesday, well below the Reserve Bank of India's target of 4% for the twelfth month in a row. 

Consumer Food Price Index (CFPI), moved up to 2.36% during July from the revised 2.25% print for June 2019,following the recent flooding in some states,higher prices of the pulses and vegetable prices and continued lag in kharif sowing. Pulses inflation for July was considerably up at 6.82% against 5.68% in June.

As per the latest sowing data maintained by the Union Agriculture Ministry, total acreage sown to all Kharif crops so far has remained lower at 869.55 lakh hectare as against 918.70 lakh hectare in the year-ago period. We expect the food prices should continue to remain elevated on account of loss of crops due to heavy rains and the consequent effects on prices.

  1. Fuel and light inflation witnessed with a print at 0.36%, as against a rise of 2.32% a month ago due to a sequential decline on lower LPG, coal and charcoal prices due to crude oil prices may likely remain volatile due to geo-political tensions in the Middle-East.
  2. Clothing and Footwear inflation 1.65 percent against 1.52 percent in June. However, we envisage the prices to remain at the current levels given soft demand and slowdown in the economy.
  3. Housing inflation increased marginally to 4.87% in Jul’19 from 4.84% in Jun’19. which we expect to remain at current levels in the short term.
  4. Transport and communication inflation rose to 1.6% in Jul’19 after declining quite sharply to 0.7% in Jun’19. Transport cost has been coming down on account of cost efficiency post GST implementation. Looking ahead, we expect it to remain moderated on account of slowdown in the economy
  5. Inflation in household goods and services grew by 4.04% in Jul’19 as against 4.28% in Jun’19. . Looking ahead, we believe it to remain at the current levels on account of moderation in the economy
  6. Core inflation grew a tad higher on MoM basis to 4.2% in Jul’19 from 4.1% in Jun’19. We feel that the core inflation will converge with headline inflation at sub 4% after the RBI cited even more subdued inflation expectations.

The RBI in its recent monetary policy meeting retained its “accommodative” stance and cut the key rates by 35bps. We expect inflation to remain benign at ~3.1 to 3.3% until 1HFY20E. Up-tick in core inflation relating to consumer spend is expected to rise post H1FY20E, which shall push CPI to 3.5-3.7% levels, closer to the RBI’s target range of 4%. We expect another rate cut in Oct-19 Meeting by 25 bps at the minimum.


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