Nomura expects inflation to average 4.8 per cent in FY24, lower than RBI’s projection of 5.2 per cent.
“Our analysis places May CPI inflation tracking around 4 per cent, which suggests the Q2 2023 average is likely to undershoot the RBI’s forecast of 5.1 per cent by as much as 60bp. We expect inflation to average 4.8 per cent in FY24, lower than RBI’s projection of 5.2%. We also have a materially divergent growth view and expect GDP growth at 5.3 per cent in FY24 compared to the RBI’s forecast of 6.5 per cent. We believe a macro regime shift is underway from high growth-high inflation to low growth-low inflation, which is likely to cause the RBI to pause in the near term, and shift to rate cuts from October onwards. We continue to project 75bps rate cuts cumulatively in H2 FY24,” Nomura said in a report.
Price data for the first 11 days of April suggest that despite reports of heatwaves and unseasonal rainfall, cereal prices remain relatively well-behaved on an MoM basis. Nomura’s truncated vegetable tracker comprising tomatoes, potatoes, and onions has picked up to 1.8% MoM in April – the first expansion in the past six months, and indicative of rising vegetable prices as the summer months roll in.
“We also see an increase in MoM prices in our trackers for sugar, milk, eggs, and pulses, while prices of vegetable oils and tea are tracking lower. Outside the food basket, petrol and LPG prices remain unchanged from last month. Gold prices (linked to personal care CPI) continue to escalate, and cotton prices (linked to clothing CPI) have come off. On balance, a combination of base effects and easing momentum suggests that headline inflation is tracking lower at ~4% levels in May, with core inflation at around 5 per cent,” Nomura said.