India’s CPI inflation moderated to a 5-month low of 4.35% in Sep-21 from 5.30% in Aug-21; extending the recent downdraft into the third consecutive month. The sizeable gap down was largely in line with our expectations, but posed a favourable surprise to market consensus. The impact of the benign sequential momentum at 0.18%MoM (vs. 0.25% in Aug-21 and Apr-Jul average at 0.9%) on the headline inflation was outsized by a favourable base. Looking ahead, we see the recent comfort on inflation to continue well into Q3 FY22, with a pickup in sequential momentum getting more than offset by a favourable base. Inflation trajectory is however expected to move up in Q4 FY22 with readings possibly testing yet again RBI’s upper threshold of inflation band of 6.0%. As such, we hold on to our FY22 inflation estimate of 5.6%.
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