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India Ratings & Research (Ind-Ra) has revised retail inflation estimates up to 30 basis points upwards during the October-December (Q3 of FY24) and January-March (Q4 of FY24) quarters of the current fiscal. Earlier, S&P Global and the Reserve Bank of India (RBI) upped the estimate.
Data from the Petroleum Planning & Analysis Cell (PPAC) showed that crude oil prices for the Indian basket surged to $93.4 a barrel from $74.93 a barrel in June.
“Retail inflation is expected to rise to 5.9-6.1 per cent in 3QFY24 and 5.3-5.5 per cent in 4QFY24 from our earlier forecast of 5.8 per cent and 5.1 per cent,” the agency said in its latest report on Macro Economics authored by Sunil Kumar Sinha (Principal Economist), Paras Pal (Senior Analyst) and Paras Jasrai (Senior Analyst). This revision has been made as the firm upped the cost estimate of the Indian oil basket for 2HFY24 to $94.50/bbl from earlier $87.80/bbl.
The note said that a 1 per cent increase in the cost of the Indian oil basket increases the retail inflation by 4bp if the pass-through is full (Scenario 1) and 2bp if the pass-through is 50% (Scenario 2). “Ind-Ra’s current retail and wholesale inflation forecast for FY24 are 5.5 per cent and 1 per cent, respectively. However, if the average cost of Indian oil basket increases to USD94.50/bbl during 2HFY24, then average retail inflation for FY24 would increase to 5.7 per cent under scenario 1 and to 5.6 per cent under scenario 2,” it said.
Earlier this week, S&P Global Ratings said that the increases in global oil and food prices, combined with jumps in vegetable prices, raised consumer inflation by a large margin. It was 6.8 per cent in August, above the Reserve Bank of India’s upper tolerance limit of 6 per cent. “While we see the vegetable price inflation as temporary, we have revised our full fiscal year consumer inflation forecast for India to 5.5 per cent from 5 per cent earlier,” the agency said. In its August review, RBI raised estimate for Q3 to 5.7 per cent from 5.4 per cent, though it maintained 5.2 per cent for Q4. Now, it is further expected to revise the rate when monetary policy review will take place next month.
Meanwhile, Ind-Ra noted that after the Russia-Ukraine conflict, the three major public sector oil manufacturing companies (OMCs) had incurred an aggregate loss (EBITDA) of Rs 12910 crore in 1QFY23 as they did not raise the retail prices of petrol and diesel April 2022 onwards. Later when oil prices started correcting August 2022 onwards, they still maintained a status quo on the retail prices of petrol and diesel. This helped them generate profit, and the aggregate EBITDA of the three OMCs increased to Rs 49150 crore in 1QFY24. “Ind-Ra believes the oil prices increase will be shared by all – consumers, government and OMCs,” the note said.
Talking about producers’ inflation based on Wholesale Price Index (WPI), the agency expects wholesale inflation to rise to 3 per cent in 3QFY24 and to 3.7 per cent in 4QFY24 compared to its earlier forecast of 2.1 per cent and 2.6 per cent respectively.
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