A Dissection into 18-Month Low CPI Rise of 4.7%

Yesterday, The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI) released the much-awaited inflation data . The CPI (consumer price index) for April 2023 rose at a rate of 4.7%, a noticeable slowdown from the preceding month’s rise of 5.66%.

Image Description: Comparison of Inflation data for April 2023 (both MoM and YoY)

Image Sorce: Ministry of Statistics and Programme Implementation

The inflation rate was even lower than the forecast of 4.8% and exactly 1 year back, it touched the peak of 7.79% in April 2022. This is the slowest rise in inflation in the last 1.5 years, conforming to the RBI’s decision to pause further rate hikes in the previous MPC (monetary policy committee) meeting.

So which components of CPI were more impactful? There has been a deflation of 6.5% seen in vegetable prices, meaning vegetable prices actually decreased from April last year, while a higher deflation of 12.33% was seen in the oils and fats category. Prices of meat and fish food items also declined by 1.23%. In the Food and beverages category, the steepest rise was seen in the prices of spices, which rose by 17.43%. Cereals and products also rose by 13.67% and had a higher impact on rising inflation due to their strong weightage of 9.67% in the CPI. The inflation rate of both clothing and footwear was above 7% each. Fuel and light saw a 5.52% uptick in prices.

State-wise inflation data tells Uttrakhand and Telangana witnessed the highest inflation in India, both reporting a CPI rise of over 6% each. The lowest inflation rate was recorded in Chattisghar which was a surprising 0.54%. Maharashtra and Uttar Pradesh’s inflation impacts the overall CPI the most due to their highest weightage of 13.18% and 12.37%, respectively. They both had an inflation print of 4.51% (Maharashtra) and 5.29% (UP).

As inflation has sharply come down to the RBI’s target of 4% (+/-2%) and RBI’s stance to pause rate hikes even before the US Fed, it seems like, after a long time, the rate hike cycle is over. This is probably what is being discounted in the equity markets as they have been rallying since the beginning of April 2023. Crude oil prices which are a major contributor to inflation are also hovering near the comfortable rolling 1-month average of around US$78 per barrel (from US$94 a barrel in November 2022) which is further providing the comfort of inflation not being sticky anymore.

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