SBI Expects Average CPI Inflation In FY24 To Be At 4.9% From To 6.7% In FY23

The State Bank of India (SBI) on Monday said that it expects the average consumer price index (CPI) inflation in FY24 to be at 4.9 per cent compared to 6.7 per cent in FY23.    

In May, India’s CPI inflation moderated to an almost 25-month low to 4.25 per cent (SBI estimate: 4.20 per cent) as compared to 4.70 per cent in April 2023, broadly on expected lines driven by the base effect. 

Core CPI although increased marginally to 5.15 per cent in May as compared to 5.12 per cent in April, but is still below the one-year average of 5.9 per cent.   

The retail inflation remained within the tolerance range of the RBI for the third consecutive month. Nevertheless, continued vigil on the evolving inflation outlook is warranted, especially as the monsoon outlook and the impact of El Nino remain uncertain, SBI said in its ecowrap report.     

Also, item-wise weighted contribution showed that the 45 bps decline in CPI inflation in May 2023 when compared to April 2023 is attributed majorly to tomato, whose weighted contribution has reduced by 36 bps.

“Overall, nine out of the top ten items witnessing a decline in weighted contribution in headline inflation are in food and fuel, while one item is under transport and communication,” the report stated.     

As per IMD’s long-range forecast released in May, Southwest monsoon seasonal (June to September) rainfall over the country as a whole is most likely to be normal (96 to 104 per cent of Long Period Average (LPA)). 

The concurrently released IIP data showed that IIP rose 4.2 per cent YoY in April 2023 after dipping to a five-month low of 1.7 per cent in March 2023. While mining increased by 5.1 per cent, manufacturing grew by 4.9 per cent, electricity continued to contract at 1.1 per cent.  

Using the AI/ML model the four mutually exclusive scenarios of repo rates constructed by training the data of RBI rate deciding manner for the period of February 2022 to November 2022 shows that the current rate of 6.5 per cent is already higher than the required rate of 6.23 per cent (highest among four cases).  

“We expect one more pause by the RBI MPC meeting on August 23, while carefully watching the CPI and Core CPI numbers in on going months. While we rule out a rate cut any time soon, we pencil in the first rate cut by RBI in Q4 FY24,” it added.

The magnitude could be larger than 25 bps.