India: Core inflation accelerates further – Nomura

Analysts at Nomura note that India’s CPI inflation rose to 4.9% y-o-y in May from 4.6% in April, higher than expected (Consensus: 4.9%; Nomura: 4.7%), driven by all three components – food, fuel and core inflation.

Key Quotes

“Core inflation (CPI ex-food & beverages, fuel) rose further to 6.3% y-o-y in May from 6.1% in April. Seasonally adjusted, “super core” inflation (CPI ex-food and beverages, fuel, housing rent, petrol and diesel) rose 0.53% m-o-m over an elevated 0.63% m-o-m in April, indicating persistence of price pressures.”

“Industrial production (IP) growth increased to 4.9% y-o-y in April from an upward revised 4.6% in March, weaker than expected (Consensus: 5.9%, Nomura: 7.2%), led mainly by stronger output growth in the capital goods and infrastructure goods sectors.”

“The data suggest that adverse macro headwinds are resulting in higher inflationary pressures and some softening in growth momentum at the margin.”

“We expect the Reserve Bank of India (RBI) to deliver another 25bp rate hike in August, owing to persistence in core momentum in May and our expectation that inflation will remain elevated in the near term.”