India’s retail inflation decelerated to 5.30% YoY in Aug-21 from 5.59% in Jul-21. The moderation in headline inflation goes beyond the perfunctory statistical base support with easing of sequential momentum providing relief. There is comfort to be drawn from expected trajectory on food and fuel inflation. However, there is also a need to keep a close watch on core inflation pressures that could potentially spring back with the confluence of pent-up demand and revenge spending that would aid the pass through of elevated input prices. On balance, we stick to our FY22 CPI inflation forecast of 5.6% vis-à-vis 6.2% in FY21 and continue to expect a gradual backloaded normalization in monetary policy.
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