India’s headline inflation and core prices decelerate sharply in April, RBI to remain on hold this year

India’s consumer price inflation and core prices moderated sharply in April. The CPI data came in at 2.99 percent, a sharp slowdown from March’s print of 3.89 percent. Consensus expectations were for the headline print to slow to 3.3 percent in April. Meanwhile, core prices decelerated from March’s 5.04 percent to April’s 4.37 percent.

Weak prices of cereals and pulses countered monthly rises in perishables food prices. Proactive food supply management by the government is expected to remain critical to stave off pressures on headline inflation in the summer months that typically witness a rise in prices of perishable food items, noted ANZ in a research report.

The core inflation print was at an 18-month low even as the March figure was upwardly revised by 20 basis points to 5.04 percent. But the core print is likely an aberration as domestic fuel prices were cut in April before state elections. On a month-on-month basis, the core momentum stayed flat while services inflation components continued to stay sticky.

Auto sales figures were strong in April, rising 9.5 percent year-on-year. This supports the view that aggregate demand is rebuilding with progressive remonetisation of the economy. The attendant release in pent up demand is expected to maintain stable core pressures. Thus, the base case is that the Reserve Bank of India would continue to be on hold this year and keep its policy repo rate at 6.25 percent, stated ANZ.

The recent fall in global crude prices has been considerable, and if sustained it would suggest lower imported inflation. Along with normal monsoons as per the official forecast, inflation and inflation expectations might probably ease, thereby opening up space for additional accommodative policy stance, added ANZ.