ICRA Quote on CPI Data by Aditi Nayar, Chief Economist, Head Research and Outreach

“The headline CPI inflation print dipped marginally to an 11-month low of 4.8% in April 2024 from 4.9% in March 2024, while printing in line with ICRA’s projection. The moderation was led by a larger deflation in the fuel and light segment, and softer prints for the clothing and footwear, and pan, tobacco and intoxicants groups.
Inflation in the food and beverages group inched up to 7.9% in April 2024 from 7.7% in March 2024, although this was not broad-based, and was led by higher prints across just four of the 12 sub-groups, namely cereals, meat and fish, oils and fats, and fruits. Inflation in the vegetables and pulses categories remained in double-digits for the sixth and eleventh consecutive month, respectively, thereby contributing to the elevated food and beverages print. Notably, inflation in spices eased to single digits in April 2024 after a gap of 22 months.

Although the YoY inflation in the miscellaneous segment remained unchanged at 3.5% in April 2024 vis-à-vis the previous month, the MoM uptick was larger than expected at 0.6%, marking the highest increase in as many as 23 months. This can largely be attributed to an unusually high 3.0% sequential increase in the personal care and effects sub-group, possibly reflecting the surge in global gold prices.

ICRA fears that the food and beverages inflation will retrace above the 8.0% mark in May 2024, partly on account of the adverse base (+3.3% in May 2023 vs. +4.2% in Apr 2023), as well as the above-normal temperatures and heatwave conditions during the summer season, which would push up the headline CPI inflation to a five-month high of 5.1-5.2% in the ongoing month.

The impending favourable base effects during Q2 FY2025 are expected to materially soften the headline inflation print to 2.0-4.0% in July 2024 and August 2024. Nevertheless, a timely onset and well distribution of monsoon season would be crucial to support agriculture output in 2024-25 and help control food inflation.

With continued uncertainty, especially on the risks to the food inflation trajectory after Q2 FY2025, the chance of a stance change in the upcoming June 2024 monetary policy review appears rather dim.”