The retail inflation for the month of August came in at 5.3 percent, mainly due to easing food prices, according to official data. The retail inflation based on the Consumer Price Index (CPI) was 5.59 percent in July and 6.69 percent in August 2020.
Meanwhile, the Reserve Bank (RBI) had kept the key interest rates unchanged in its monetary policy review in August. The central bank primarily focuses on the CPI while deciding its bi-monthly monetary policy.
In an interview to CNBC-TV18, Upasna Bhardwaj, senior economist at Kotak Mahindra Bank and R Sivakumar, head-fixed income at Axis Mutual Fund spoke at length about the CPI inflation.
Bhardwaj said that Kotak expects a full-year average for CPI inflation close to 5.5 percent versus an earlier estimate of around 6 percent.
“As per our expectations, we are tracking a full-year average of 50 bps lower than what RBI had projected in August. So somewhere around 5.2 is our full-year average. The near-term forecast, which we already knew were overestimated by RBI, is going to be about 70-80 bps deviation from RBI’s projection,” she said.
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Meanwhile, Sivakumar of Axis Mutual Fund expects the RBI to start making its move on rates closer to the end of this financial year. By that time, the current year inflation focus will no longer be valid, he said.
“What really matters is inflation expectation for FY23 and beyond this, and that's why the outturn of inflation for the next few months is not really relevant from the RBI perspective,” he explained.
For the entire discussion, watch the video