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MOSL: ECOSCOPE-CPI inflation below expectations; Expect another rate cut in Oct’19

ECOSCOPE: CPI inflation below expectations; Expect another rate cut in Oct’19

 

• CPI-based retail inflation decelerated marginally to 3.1% in Jul'19 from 3.2% a month ago. The number was largely in line with consensus but lower than our estimate of 3.4%.
• Lower headline inflation in the month can be attributed to unchanged food inflation and deflation in the 'fuel and light' category. Food inflation was at 2.3% v/s our estimate of 2.9%, whereas 'fuel and light' inflation was reported at -0.4% v/s 2.2% a month ago and our estimate of ~2.0%.
• Core inflation (all items excluding 'food & beverages', 'pan, tobacco & intoxicants' and 'fuel & light') inched up to a three-month high of 4.4% from 4.1% in the previous month.
• Inflation in 'core services' decelerated to a 15-month low of 5.3% in Jul'19 from 5.4% a month ago, supported by lower inflation in household, health, education and personal care. Inflation in services such as transport & communication and recreation inched up during the month.
• Based on our expectation of subdued GDP growth (we expect ~5.6% growth in 1QFY20) and lower CPI inflation, we expect the RBI to cut its policy rate by 25bp one more time in its Oct'19 monetary policy meeting. We expect inflation to cross 4% in Oct'19 and average 4.1% in FY20.