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MOSL: ECOSCOPE-April CPI higher than expected but not alarming enough to prompt a hike rate

ECOSCOPE: April CPI higher than expected but not alarming enough to prompt a hike rate; MSP announcement in early June holds the key

 

• CPI inflation rose to a three-month high of 4.6% YoY in April 2018 from 4.3% in the previous month. The number was higher than our estimate/market consensus of 4.4%.
• Food inflation was unchanged at 2.8% YoY in April 2018 versus the previous month, but came in slightly higher than our estimate of 2.7%. While most food items witnessed a pick-up in inflation, this was offset by a sharp fall in vegetables inflation.
• Core inflation surged to a 45-month high of 6% YoY in April from 5.2% in the previous month. The number was higher than our estimate of 5.7%. Inflation in core services rose to a 27-month high of 5.2% YoY, while that in housing edged up to 8.5% YoY.
• The RBI's inflation forecast was 4.7%-5.1% for 1HFY19. Although the April reading is lower than the range, we expect inflation to rise over the next two months to touch 5.4% in June, overshooting the RBI's expectations. We believe that this is not alarming enough for the RBI to hike rates. However, the MSP announcement for Kharif crops - likely in early June - remains the key trigger for the MPC.