The surprise quotient in May-21 CPI inflation has led most experts to rigorously reassess drivers of inflation and the inflation trajectory for FY22. In our own assessment,
Download ReportQuantEco MACRO tidings Statistical anomalies complicate inflation inference
The surprise quotient in May-21 CPI inflation has led most experts to rigorously reassess drivers of inflation and the inflation trajectory for FY22. Discussions and rationale have been centered around the surge in core inflation, pass-through from input prices, tax incidence driven fuel inflation, sizeable supply disruptions amidst decentralized but fairly pervasive lockdowns among others. In most cases, this has culminated into an upward revision to average FY22 CPI inflation estimate, by a wide range of 30-100 bps moving from close to the 5% handle towards 6.0%. In our own assessment, FY22 CPI inflation does warrant an upward revision but not so much from the prism of change in anatomy of drivers, but more from a statistical perspective. The upside in CPI index for the month of May-21 has in some sense reset the entire FY22 inflation curve upwards. But, From a near-term perspective, there are two good statistical reasons as to why the recent inflation reading needs to be seen with some leniency.