Macroscope – CPI Inflation For The Month November 2020

What is the latest reading?

India’s retail inflation showed signs of easing after touching its highest figures in last 6 years, in the previous month. Inflation came in at 6.93% in November vs 7.61% in October, with it staying above RBI tolerance level for 8th consecutive month. Core CPI rose to highest in ~2 years, registering 5.51% vs 5.46% in the month prior.

At over 6%, inflation remains just above the MPC’s tolerance band of 4 (+/-2)%, creating a stagflation-like scenario where inflation is high despite a collapse in growth (Sharpest contraction of GDP on record at -23.9%)

Element Inflations

Investor Takeaway

Inflation breathed a sigh of relief as heavy monsoons and smoother supply chain systems helped comfort elevated food prices.

High base-effect came into play too in seeing inflation picture a softer print.

Amongst veggies, onions and tomatoes showed respite as potatoes continued to surge, rising by 107.1% vs 104.6% last month. On a sequential basis, food and beverages index continued to rise, recording 165.2 vs 164.7 last month.

Correction in prices of sub-indices under the Greens category helped deflate stepper inflation values.

As pressures on perishable food prices ready for a go on the downside, other factors such as increased input and output costs, higher labor charges and rising oil prices can dampen hopes of drop in inflation in coming times.

Core-inflation is expected to chart a similar trajectory as demand-side factors continue to battle the covid brunt.

In its bi-monthly monetary policy meeting earlier this month, the central bank kept its key interest rates unchanged while maintaining its accommodative stance. Continuing to focus on growth via polices and packages, RBI is to use an arsenal of unique liquidity and similar supportive strategies to maintain current pace of expedited growth.

With fears of 2nd covid wave, we expect supply challenges to sustain over the short-term.

Hence, it is likely to remain on pause in February meet and consider rate-cuts in near future after efficacy in transmission of prior rate-cuts.

Click here If you want to read the complete CPI Inflation press release