Pause or pivot? Here’s what economists are saying after April retail inflation eased to 18-month low

Based on the data and other factors, most economists believe India’s central bank will hold policy rates. Find out more:

Aditi Nayar, Chief Economist and Head of Research & Outreach, ICRA

The April 2023 CPI inflation eased to an 18 month low of 4.7%, benefitting from the high base as well as cooler than normal temperatures, which delayed the seasonal rise in prices of perishable items.

Although the impact of a favourable base effect related to escalation of geopolitical conflict is likely to have peaked in April 2023, ICRA foresees the CPI inflation to remain range-bound at 4.7-5.0% in May-June 2023. With a dip in the CPI inflation below 5.0% and surprisingly subdued IIP growth, we foresee a high likelihood of a pause from the MPC in its next meeting. However, a pivot to rate cuts appears quite distant.

The timeliness and intensity of the monsoon onset would be known when the MPC meets at its next scheduled meeting in June 2023, which would feed into whether its CPI inflation projection of 5.2% for FY2024 needs to be modified.

Abheek Barua, Chief Economist, HDFC Bank

As was true for March, the base effect was the dominant factor at play in April. However, inflation moderated on a sequential basis as well providing some confidence that the disinflationary trend might be underway.

Going forward, while any resurgence of inflationary risks due to weather disturbances (impact of El Nino in the latter half of the monsoon season) remains a possibility, for now this print should nudge the RBI to keep rates on hold at its June meeting as well. Moreover, we retain our call for the RBI to keep rates unchanged at 6.5% throughout FY24.

In terms of the inflation trajectory, we expect headline print to drop further in May and remain below 5% in Q1. Thereafter inflation could average at 5.2% in Q2 and 5.3% in Q3. If indeed the current sequential moderation in inflation continues and weather conditions remain forgiving, we could see inflation averaging at 5% in FY24.

Rajani Sinha, Chief Economist, CareEdge

While the moderation in CPI inflation has been supported by the high base and has been broad-based, there has specifically been a sharp drop in fuel and light inflation. While food inflation has further moderated, led by edible oil and cereals inflation, the sequential price momentum in items like milk and pulses remains a concern.

Core inflation below 6% comes as a big relief. We expect CPI inflation to remain below 5% in the next two months and for the full fiscal year, we expect average CPI inflation at 5.1%. Weather-related disruptions could be the main threat to food inflation and overall CPI inflation in FY24. We maintain our view of RBI maintaining an extended pause in 2023.

Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities

Core inflation at 5.1% continued to fall sharply primarily due to base effects with sequential increases remaining relatively elevated at 0.6% mom.

Overall, the RBI will see this print favourably and remain on a pause in the June policy while maintaining a cautious outlook on inflation. We continue to pencil in repo rate to remain unchanged for an extended period subject to global growth prospects, central bank actions, and domestic growth prospects.

Yuvika Singhal, QuantEco Research

With the Apr-23 print, CPI inflation remained within RBI’s target range for the second consecutive month. While food price pressures remained somewhat broad-based, the material let-up in some of the key categories such as Wheat and Oilseeds continued to offer comfort. In addition to non-core, Apr-23 CPI fine-print confirms nascent signs of moderation in core price pressures.

From a policy perspective, movement in headline towards the 4% target and a drop in core inflation to under 6% (after a gap of 10-months) would be comforting. If oil prices stay at current levels and El Nino impact remains mild, some downward bias to our FY24 CPI inflation estimate of 5.3% could emerge.

Nikhil Gupta, Chief Economist, MOFSL Group

Details suggest that the fall in headline inflation was not broad-based, although it’s highly welcome.

• Deflation in imported items (weight = 9.8%) led to lower headline inflation.
• Domestically generated inflation was at four-month low of 5.7% YoY in Apr’23.
• CPI ex veggies was at 37-month low of 5.4%
• Standard core inflation (ex food & energy, weight = 51.8%) was up 5.8%, lowest in 11 months
• Services inflation was at 11-month low of 4.8%, with core services inflation (ex-housing) at 3-year low
• Details suggest that 49.3% of CPI basket still posted 6%+ inflation v/s 51.9% in Mar’23.

Overall, we continue to expect inflation to ease towards 4.5% in coming months and towards 4% by Sep-Oct’23, much lower than the RBI and market consensus (of >5%)