CPI may hit 6.2% by end of Q2, says Morgan Stanley
NEW DELHI : Morgan Stanley on Wednesday said it expects India’s retail inflation to leap to 6.2% at the end of the quarter ending September, against its previous forecast of 5.5%, due to higher prices of food. However, the consumer price index (CPI) is expected to moderate to 5-6% in the second half of FY24. The investment bank said despite its core inflation forecast for India remaining unchanged, it maintains the base case of a shallow rate cut cycle from Jan-March 2024.
It also expects the recent trend in inflation to undergo broad-based moderation, and the possibility of a delayed start in the rate-cut cycle. In a report titled ‘Assessing Risks to Inflation Trajectory’, Morgan Stanley said it expects India’s CPI during July to be around 6.2-6.4%. “The upside is primarily being driven by (an) increase in food inflation, mainly reflecting higher inflation in vegetables and somewhat in pulses and cereals.
We expect core inflation to remain unchanged and largely range-bound around 5.0-5.2%," the report said. “Beyond QE (quarter ending) Sep-23, we expect inflation to track between 5-6%, driven by changes in food inflation. Indeed, vegetable prices tend to be volatile with a short cropping cycle and can potentially correct swiftly." Food inflation, accounting for a sizeable 39% of CPI, is showing signs of pressure due to extreme weather events, domestic policy and geopolitical developments.
Food inflation can be high even when the monsoon is normal, according to another report by rating agency Crisil. Monsoon has swung from deficit in June to normal in July, bringing spells of excess rain for major crop-producing states. The current risk emanates from excess-rain-led damage to vegetables and crops in the well-irrigated
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