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'Decrease in prices of perishables may moderate Sep inflation to 4.62%'
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SME Times News Bureau | 06 Oct, 2021
Correction to prices of perishables in the food basket may result in
moderation of CPI inflation to 4.62 per cent year-on-year, Barclays said
on Wednesday.
In a research report focused on India, the
investment banker said that decline in prices of perishable foods should
ease inflation further in September, but a diverse set of temporary
shocks should push up core inflation. The elevated global
commodity prices continue to exert upward pressure on India's import
basket. Overall, we continue to forecast that CPI inflation will average
5.4 per cent in FY2021-22, with risks balanced, Barclays said in its
report.
The inflation projection of 4.62 per cent for September
should be comforting to the government as several factors have emerged
to push up the pressure in the economy. The September numbers never will
further take inflation to RBI's comfort zone of closer to 4 per cent
rate.
CPI inflation has maintained a southward movement for the
past couple of months. It stood at 5.3 per cent in August and 5.59 per
cent in July. Analysts feel that high base effect is also responsible
for inflation numbers showing a downward trajectory. This should correct
post November when the high base effect advantage of last year should
vanish. Thereafter the projection is that inflation may again rise in
the fourth quarter period of FY22.
"Overall, at 1.7 per cent y/y
in September, food inflation would be at its lowest in 29 months. If the
benign food price trend continues in October, food inflation could move
lower again and push the headline inflation below 4 per cent y/y in
October, owing in part to a high base," Barclays said.
But the
core inflation in the month may remain at elevated levels and further
rise in September due to pressure on energy prices particularly fuel
prices that has seen rise to multi year high levels now.
Moreover,
with India's second Covid wave largely under control, many state
governments have allowed schools to reopen, which could result in a rise
in tuition fees. In addition, temporary price increases could also be
seen in motor vehicles (due to regulatory changes) and telecom services
(due to ongoing price revisions).
"We also expect the increase
in healthcare costs to remain sizeable. Overall, we expect core CPI
inflation to rise to 6.4 per cent y/y in September," the banker said in
its report.
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