Will the sharp spike in retail inflation scare RBI?
The Reserve Bank of India's (RBI) Monetary Policy Committee may consider moving to a neutral stance in August, said Samiran Chakraborty, Chief Economist, Citi. According to Chakraborty, the timeline of policy normalisation could be advanced to before the festive season -- October instead of December -- if inflationary pressures do not abate. Indias Consumer Price Inflation (CPI) surged to 6.3 percent in May, after it hit a three-month low of 4.23 percent in the previous month, according to data released by the Ministry of Statistics and Program Implementation. With this, CPI has breached the RBI's threshold of 6 percent. The CPI was maintained below the 6 percent mark for five consecutive months before this. The RBI has set the inflation target at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. A shocking rise in May CPI to 6.3 percent YY (BBG: 5.38percent) with core inflation at a 7-year high of 6.6 percent YY cannot be explained entirely by lockdown effects. The momentum in Headline CPI was more than thrice the last 3-year average, with prices rising >1 percent MoM in 14 of the 19 key CPI sub-indices indicating broad-based price pressure. WPI pass-through on CPI Core goods more visible though there was some moderation in WPI inflation, Chakraborty said. Citi has revised its average headline inflation forecast to 5.9 percent vs 5.0 percent earlier for FY22.