CPI September print a positive surprise, says ICICI Bank honcho; IIP August data as expected

India's two economic indicators today showed opposite trends. The CSO presented data on India’s Industrial Production (IIP) for the month of August 2018, while the Consumer Price Index (CPI) inflation numbers were for the month of September 2018. Ahead of the data announcement, markets ended on a positive note, with Sensex closing at 34,733.58 points, above by 732 points or 2.15%, while Nifty 50 was up by 237.85 points or 2.32%, finishing at Rs 10,472.50 points.

India's consumer price index (CPI) or retail inflation came in at 3.77% during the month of September 2018 slightly higher compared to 3.69% of the previous month. Also, the latest number was higher from 3.28% in the same month of previous year.  

Meanwhile, India's Consumer Food Price Index (CFPI) inched up 0.51% in September compared to 0.29% in August 2018 and 1.25% in September 2017. 

Talking about the CPI numbers for September month,  B Prasanna, Group Executive and Head- Global Markets Group, ICICI Bank said, "The September CPI print was a positive surprise since it was much lower than our as well as the street expectations and was assisted by a sharp fall in all food components. Fruits, vegetables and protein components led the decline. It appears from the data that the upside risks to food prices through MSP may be unlikely to play out."

Prasanna added, "While core inflation remained sticky at ~5.8%, the core inflation excluding transport was at ~5.7%, showing input price pressures."

For outlook ahead, Prasanna believes, the FY2019 headline inflation to remain sub 4.5%, despite upside risks from high oil prices and impact of the rupee depreciation.

Coming to IIP, the factory output decelerated to 4.3% from previous 6.6% in July 2018 and 6.9% in June 2018. The IIP data has touched a four-month low - in April 2018, IIP was at 4.5%. 

Cumulative growth for the period April-August 2018 over the corresponding period of the previous year stands at 5.2%.

On IIP, Prasanna said, "IIP numbers came as expected at 4.3% with moderation in manufacturing and consumer durables while consumer non-durables showed steady growth."

" We expect FY2019 GDP to average 7.6% with a downward bias on account of possible moderation in consumption and base effect in the second half," said Prasanna. 

Interestingly, talking about the monetary policy, which takes in to account inflation as major indicator, Prasanna said,"a benign inflation reading will reduce the probability of aggressive rate hikes from RBI going forward.“

In October 2018, RBI maintained a status quo keeping repo rate unchanged at 6.50%. RBI remained firm on its inflation trajectory, despite free fall in Indian rupee which clocked all-time low of 75-mark against US dollar. 

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RBI in fact has lowered its CPI inflation target at 4.0% in Q2:2018-19, 3.9-4.5% in H2 and 4.8% in Q1:2019-20, with risks somewhat to the upside.