India’s March retail inflation eases below RBI’s upper tolerance level

Annual retail inflation eased to 5.66% in March from 6.44% in the previous month, government data showed on Wednesday. The Reserve Bank of India targets a range of 2%-6%.

A Reuters poll of 39 economists had forecast an annual inflation rate of 5.80% in March.

The March consumer price index (CPI) inflation came a week after the RBI’s Monetary Policy Committee (MPC) maintained a surprise status quo on interest rates. However, Governor Shaktikanta Das said that “it is a pause, not a pivot”.

Here’s what experts are saying:

DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, MUMBAI
“The decline in March inflation was on expected lines and was due to a strong base effect, which will be even stronger in April 2023. The good part of th e inflation number is the reversal of an increasing trend of nine months of rising cereals and products inflation. It appears that government interventions have helped in arresting the increasing inflation of cereals and products. However, the impact of unseasonal rains and the likely impact of monsoons may give some temporary shocks to inflation.

“Inflation in the near term is likely to be lower than 6% due to the base effect. This will give some solace to monetary authorities. We, therefore, believe that the growth-inflation dynamics at the current juncture do not warrant further rate hikes at present. However, the RBI will continue to monitor inflationary trends and should a situation arise, it may take necessary action.” SAUGATA BHATTACHARYA, EXECUTIVE VP AND CHIEF ECONOMIST, AXIS BANK, MUMBAI
“The March CPI inflation printed at 5.66%, close to the markets’ median of 5.8%. Core inflation was 5.95%, led by a drop in transport as well as clothing and footwear. This is likely to keep the MPC on pause even at the next review meeting in June, given that disinflation is likely to continue on the forecast glide path. A key data point to watch will be the US CPI due later evening today”

RADHIKA RAO, SENIOR ECONOMIST AND EXECUTIVE DIRECTOR, DBS BANK, SINGAPORE
“March CPI inflation eased in line with our forecast to a three-month low, validating the central bank’s pause last week. The headline print is likely to average sub-5% this quarter on base effects, convincing the MPC to leave rates unchanged at the next review.

“Food inflation also eased in year-on-year terms but picked up on a month-on-month basis, owing to the impact of unseasonal rains and firm protein, while administrative measures helped to soften cereals prices. Imported pressures, however, continued to moderate as global oil/ commodity prices retreated. Excluding the volatile segments, core inflation moderated to a six-month low, below 6% yoy.”

MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI
“The easing of headline and core inflation in near-expected lines, while positive, is still implying inflation average has overshot RBI’s Q4 estimate.

“Inflation trends ahead should ease and we see headline inflation averaging 5.3% in FY24 and core undershooting headline to average around 5.1%. Factors like better rabi output and easing cost conditions would be countered by weather-related vagaries, milkflation, higher global financial market volatility and ongoing pass-through of input prices to output prices, impacting core services inflation.”

SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“The base effect worked its charm and pulled down headline retail inflation in March as expected. It was encouraging to see that apart from food inflation, core inflation also dropped in the month below 6%.

“This print aligns with RBI’s recent policy pause and the central bank is expected to stay on hold for the rest of the year.

“Inflation is likely to trend lower in the coming quarter as the impact of a high base effect lingers on. The recent projection by IMD of a normal monsoon bodes well for the inflation trajectory. However, the impact of heat waves and any disruption in the progress of monsoon due to El Nino could upset the disinflation trend and remains a risk.”

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
“Retail inflation came in at 5.66%, nearly in line with our expectations of 5.7% YoY and vs 6.44% YoY in Feb 23, as housing inflation subdued and core price increase moderated sequentially. For FY24, expect the base effect to play its part in allowing CPI inflation to cool towards an average of 5.2-5.5%.

“Even as Governor Shaktikanta Das asserted that the April 2023 policy pause should not be viewed as a pivot, we believe the bar for future rate hikes has been raised, especially since near-term prints of CPI will be sub-6%.

“Unless CPI inflation rises above 6% on a sustainable basis, we expect the MPC to maintain a prolonged pause hereafter and assess the lag impact of previous rate hikes amid global macro uncertainty and the tail end of the global rate hike cycle.”

UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“The March inflation figures have moderated broadly in line with expectations. Much of the softness was expected on account of the base effect along with moderation in prices of cereals and core inflation. While favourable base effects should continue to ease the headline inflation in the quarter ahead, we remain wary of food inflation in the months ahead given weather adversities. However, the RBI is expected to remain on an extended pause evaluating the impact of the past rate hikes.”