Inflation Rate


  • The consumer inflation is expected to be near the upper bound of the RBI’s inflation targeting range. Headline CPI is therefore estimated to be 6% for the current financial year.
  • As far as inflation is concerned, the month of September was reckoned to be critical for the current financial year as unfavorable base effect was expected to wither away. The September print however remained elevated at 7.34%, auguring an end to the rate cut cycle for now.
  • Consumer inflation is highly influenced by the food basket (given its weight in the index). Due to Covid related restrictions, supply chains were severely impacted despite healthy output. The food basket inflation rate is therefore estimated to remain elevated and is pegged at over 10% for the current financial year.
  • Protein based items and seasonal vegetables are expected to be inflationary in non-core categories (includes food).
  • Core inflation, which can be considered a proxy for consumer sentiment has also shown signs of stress and is expected to breach the 5% level for the entire financial year. Despite lower than usual demand, an elevated core inflation suggests both input related as well as retail level inflation.
  • Lower oil prices and a favorable base effect (towards Q4 of the financial year) for the non-core basket will be crucial in keeping the inflation rate within the RBI’s target range.
  • Given the state of the inflation rate, a further cut in Repo and subsequent positive impact on yields now appears farfetched.