May 14, 2018 / 12:26 PM / 9 days ago

Expert Views: Consumer inflation accelerates to 4.58 percent in April

MUMBAI/BENGALURU (Reuters) - India’s annual consumer price inflation accelerated in April to 4.58 percent, after easing for three straight months, data from the Ministry of Statistics showed on Monday, mainly driven by faster hikes in fuel prices.

A vehicle waits to be filled up with diesel at a petrol station in New Delhi, India, January 5, 2016. REUTERS/Anindito Mukherjee

The median forecast in the poll of nearly 30 economists was for April’s annual rate of consumer inflation to rise to 4.42 percent from 4.28 percent in the previous month.

TUSHAR ARORA, SENIOR ECONOMIST, HDFC BANK, NEW DELHI

“In our view, the Reserve Bank of India could be changing their inflation forecast in the next meeting. There could also be some bias highlighted towards a rate hike by some of the Monetary Policy Committee members. Oil and MSP (minimum support price) are the key risks going ahead, along with the sticky core side pressures.”

DEVENDRA KUMAR PANT, CHIEF ECONOMIST AND SENIOR DIRECTOR (PUBLIC FINANCE), INDIA RATINGS & RESEARCH, NEW DELHI

“It is difficult to state whether or not the Reserve Bank of India will change rates based on these numbers. As long as inflation is hovering between 3.5 percent and 4.5 percent, I do not expect the RBI to intervene.

“However, if oil prices and the rupee are at the same level for some time, then there will be real pressure on inflation. The RBI may intervene because capital flows could be impacted if the rupee doesn’t strengthen.

“Our core consumer price inflation without food, energy, transport and communication is 6 percent.”

TIRTHANKAR PATNAIK, INDIA STRATEGIST, MIZUHO BANK, MUMBAI

“Inflation was coming-off in the last three-four months, but now suddenly seems like it is rising. The Reserve Bank of India’s caution on the rise in inflation is warranted. While the core call that the first half will see a slightly higher inflation figure than the next half remains. The odds of a hike from the RBI have become greater... one could see something happening as early as June.

“Rainfall is hopefully not too big a risk given IMD’s forecast of a normal rainfall. Right now, the key risk would be fuel prices. Given the secular rise in crude prices in the last one-two months at over $70 a barrel, the inflation could come back to haunt us.

“IIP number is reasonably volatile, especially in some of the components such as capital goods. So it is here that the RBI might not consider March figures as being a change in trend and might go ahead with its hawkish view on inflation. RBI might want to curtail inflation at the consumer level, and at that point, we have not seen any kind of a hurdle.”

ABHISHEK UPADHYAY, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

“Retail inflation was a tad higher than what we expected, and internals look pretty weak as well. Core inflation has touched 6 percent amidst broad-based gains in key components. Note inflation could have been higher if the impact of higher crude prices was fully passed on to the consumers, which was not the case as retail prices were kept constant towards the latter part of the month ahead of Karnataka elections.

“Overall, the outturn adds to our conviction of a possible rate hike in August. It is likely that monetary policy committee may want to give guidance to the same effect as soon as June.”

FORAM PAREKH, FUNDAMENTAL ANALYST - EQUITY, INDIABULLS VENTURES, MUMBAI

“The CPI numbers are very much in line with the expectations. If you look at RBI’s commentary, they were projecting 4.7 percent-5.1 percent for H1 FY 2019. It is still lower than RBI’s expectations. So I do not see an immediate rate hike. We will gradually see a rate hike in FY 2019.

“Since crude prices are rising towards $77 per barrel and with the rupee appreciating, inflation numbers were expected to be higher.

“Since it is still lower than RBI’s projected range, RBI would be comfortable with these numbers, and as a result, immediate rate hike is not on the cards. In the next bi-monthly policy meet, it will be status quo.

“With the current oil prices, we do not see any ease in the inflation numbers, which will continue to remain in the same range. If crude prices remain in the same range of $75-$77 per barrel, I don’t see RBI changing forecast of inflation.

“If crude rises to more than $80 per barrel, we might see RBI’s inflation expectations going higher and an immediate rate hike. We will definitely see more than 7.3 percent of GDP growth in the fourth quarter.”

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCE HOLDINGS, MUMBAI

“An increase in headline CPI inflation is primarily on account of a steep increase in the components of core inflation like clothing and footwear, housing, miscellaneous goods and services.

“A significantly high core inflation combined with surging global commodity prices would make RBI more vigilant. India is again headed for a combination of high inflation and low growth. This is very serious. Credit lines have dried up with 11 PSBs coming under the RBI’s PCA. Bond yields have surged making cost of credit prohibitively very high. The Reserve Bank of India and the government will have to work together to pull the system out of the current mess.”

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

“The key drivers of April number were food and beverages that have turned positive month-on-month after four months of contraction. Other drivers were related to miscellaneous that has seen across-the-board hardening of inflation led by education, household goods, personal care and fuel commodities such as petrol and diesel.

“Core inflation at 5.9 percent is at a 44-month high. Going forward, we expect the trajectory to move north with international crude prices firming up and likely remaining elevated as also by MSP-led food inflation. We maintain our estimate for FY19 at 4.7 percent with upward bias. The positive support could come only if we have a solid monsoon performance giving a bumper food grain output.”

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

“Firmer headline is driven by disinflation in food prices, especially vegetables, together with a sharp rise in domestic fuel prices. Housing is still upheld by remnant rent allowance changes. Hardening core pressures are the dominant takeaway from April’s outcome as it ticks towards 5.8 percent-5.9 percent, much to the discomfort of the central bank.

“The Reserve Bank of India is likely to adopt hawkish commentary in June, highlighting upside risks from MSP (minimum support price) increases and global oil prices, coupled with heightened volatility in the financial markets. Today’s outcome validates our expectations that the central bank is likely to tighten policy in August.”

SUMEDH DEORUKHKAR, SENIOR ECONOMIST, BBVA, HONG KONG

“We continue to expect a pre-emptive rate hike by the Reserve Bank of India at its August policy meeting. Whether the hike will be one-off or followed up by another hike this year would be data-dependent. Nevertheless, chances of two rate hikes in 2018 have increased.

“We remain comfortable with our fiscal year-end average inflation forecast of 5.1 percent. The bias remains on upside risks, largely led by higher oil prices and a stronger cyclical recovery in activity.

“We think RBI would revise its inflation forecast higher. Global growth momentum remains strong despite trade tensions; oil prices are edging up on geopolitical risks and domestic demand and investments are in recovery mode.

“Underlying inflation pressures are mainly demand-driven, backed by the ongoing cyclical recovery in consumption and investment. Core inflation would firm up further as the combination of higher commodity prices and improving demand abet labour costs going forward.”

Reporting by Suvashree Dey Choudhury in Mumbai, Arnab Paul, Krishna V Kurup, Jessica Kuruthukulangara and Vishal Sridhar in Bengaluru, Editing by Sherry Jacob-Phillips

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