India’s CPI inflation decelerated sharply to 4.29% YoY in Apr-21 from 5.52% in Mar-21, supported by a strong favorable statistical base. Sequentially, inflation momentum rose due to summer seasonality, elevated input costs, and some adverse, albeit minor spillover from lockdowns in several states. We continue to expect CPI inflation to moderate towards 5.0% in FY22 from 6.2% in FY21 as expectation of normal monsoon/ bumper harvest, likelihood of downward adjustment in fuel taxes, and favorable base effect would offset the upside emanating from higher global commodity prices. Nevertheless, we would keep an eye on both COVID redux and COVID riddance as potential factors influencing the inflation trajectory in unanticipated manner.
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