Estimates made by Nomura suggest that May CPI inflation is tracking sub-4.5 per cent levels. The Q2 2023 average may undershoot the RBI’s forecast of 5.1 per cent by 60 basis points.

“Based on daily price data (1-21 May), our provisional estimates suggest May CPI inflation is tracking sub-4.5 per levels, with a point estimate of 4.2 per cent y-o-y versus 4.7 per cent in April, and core CPI inflation is tracking 4.9 per cent versus 5 per cent,” Nomura said.

Base effects alone are likely to lower May headline inflation by 0.2pp, but the remainder should be due to lower momentum. Daily food price data show higher prices for vegetables, pulses, eggs, and sugar, but falls for tea and edible oils.

While m-o-m cereal prices are picking up, the pace of increase is moderate. Within the fuel basket, lower subsidised kerosene prices should help, it added.

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Within the core, gold prices — linked to personal care CPI — have continued to pick up in May, albeit lower than April’s surge; transportation CPI is likely to stay subdued with the freeze in petrol prices; cotton prices (affect clothing CPI) are higher.

“Broadly, the core categories are likely to see price pressures ease as goods price inflation falls amid steeply falling manufacturing costs and softer demand,” Nomura said.

The research analysts at Nomura however added a caveat.

“The final CPI estimate may differ once the full month’s data are out, but based on the provisional estimate, the Q2 2023 average may undershoot the RBI’s forecast of 5.1 per cent by 60bps. We expect an extended pause hereon, and an easing cycle to begin from this October.”

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