India’s retail inflation inched up to 4.48% YoY in Oct-21 from 4.35% in Sep-21, marking an end to the moderating trend in annualized rate of inflation seen in the last 4-months. Nevertheless, headline inflation remaining well ensconced within the policy target band continues to provide comfort. The month of Oct-21 saw broad based sequential price pressures, of which food can be treated as transitory. However, core price pressures continue to remain strong, elevated, and sticky on account of pass-through of high input prices amidst gradual unlocking of the economy. On balance, while we continue to believe that CPI inflation would trend lower in FY22 from 6.2% in FY21, it is likely to be somewhat higher at 5.6% vis-à-vis RBI’s forecast of 5.3%. As such, we continue to expect a gradual backloaded normalization in monetary policy with focus on liquidity calibration and restoration of width of the LAF corridor.
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