InvestorQ : Can you let me know your take on the CPI inflation announced on Tuesday?
diksha shah made post

Can you let me know your take on the CPI inflation announced on Tuesday?

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2 months ago
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On 12 January, the Ministry of Statistics and Program Implementation or MOSPI announced CPI inflation or retail inflation for the month of Dec-20. The inflation came at a surprisingly low level of 4.59%. This represents a very sharp fall from 6.93% in the month of November and well above 7% in the month of October.

The sharp fall in CPI inflation was led by food inflation basket which dipped sharply to just about 3.5%. The food basket has a weight of 46% in the overall CPI inflation basket and hence its impact on the overall inflation is a lot more pronounced. Within the food basket, vegetables inflation dipping to -10% for the month of Dec-20 had a big impact.

Even as food inflation continued to trend lower, the only concern is that core inflation has remained elevated. Now, core inflation is the inflation excluding food and fuel. That has stayed high at around 5.66% and that is a worry because the core normally tends to be sticky and unless that comes below 4%, it is tough for CPI to secularly trend down.

The one big concern for the inflation basket is the crude oil prices touching $57/bbl on Saudi supply cuts. In fact, Saudi Arabia had agreed to cut supply by another 1 million bpd for February and March 2021. Regarding the repo rate impact, the RBI has already disconnected monetary policy from inflation and hence the impact of lower inflation will be limited.

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