Inflation eases, but not RBI’s task

livemint.com:

₹200/cylinder cut in LPG prices will likely reflect in the September CPI print, and may shave off 20-25 bps from the headline rate." Still, the CPI reading for Q2 is likely to be above the RBI’s projection, which has already been revised higher by a meaningful 100 bps by the central bank in the August monetary policy meeting. Thus, an upward revision in the RBI’s Q2 projections is on the cards. As such, the central bank has pencilled in a significant easing in price pressures in H2FY24.

The path is filled with several challenges. The progress of the monsoon so far has been disappointing in September, after August was the driest month on record. This, along with lingering worries about continuing El Nino-related weather conditions pose an upside risk to the already-elevated food inflation trajectory.

To be sure, the much-celebrated drop in food inflation also has some spoilers. Inflation in heavyweight cereals and pulses continues to be in double-digits, underscoring the stickiness. For vegetables, it is the second highest reading in almost 40 months since the covid-related supply disruptions.

One must also consider that the adverse base effects for fruit and vegetable prices are likely to kick in by the end of 2023. Note that vegetable prices were in deflation from November through June. And not just the food basket, risks loom large for non-food inflation too.

Fuel inflation has risen in August after a steady fall. If the recent rise in international crude oil prices persists amid the supply cuts, it could add further upside pressures to the fuel inflation trajectory. Amid the clouds, a silver lining has been the sustained broad-based softening in core inflation over the last few months.