India’s headline CPI for April is expected to come in a tad higher from March’s print. CPI inflation in the country had decelerated by around 0.9% y/y between January and March due to a sharp slowdown in vegetable and fruit inflation. Prices of pulse continued to fall, declining almost 2% m/m in March. Lower lighting and fuel inflation also aided. However, this was mainly due to base effect as strong financial repression by the government in 2015 led to rise in retail prices. But core inflation has averaged about 4.5% y/y in the past 21 months and is not indicating any signs of slowing down.
“We expect India’s headline CPI for April 2016 (the first month of the current financial year 2015-16) to print at around 4.9% yoy, slightly higher than the March 2016 print of 4.8% yoy”, said Societe Generale in a research note.
In April, the Reserve Bank of India lowered the key interest rate, given the sharp slowdown in inflation along with the budget announced the central government in February 2016. This was the central bank’s fifth reduction of rate since January 2015. The RBI is next likely to lower rate in the fourth quarter of this year, until when the central bank expects there is enough transmission of monetary policy action to lending rates, noted Societe Generale.
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