India’s headline CPI and core inflation surge in April on rise in non-food inflation

India’s headline and core inflation rose sharply in the month of April due to a widespread rise in non-food inflation. On a sequential basis, India’s headline CPI rose 0.44 percent sequentially, the most rapid in five months. The rise was because of a surge in housing, education, and “transport and communication” segments.

The effects of a rise in house rent allowance for government employees have driven the housing costs. In the meantime, the sequential rise in education cost at 1.07 percent sequentially in April was higher than the 0.75 percent usually seen in the month. Moreover, the rise in transportation costs was due to higher crude oil prices. India’s crude oil basket had risen 11 percent sequentially in the month.

“We estimate each of these components to have contributed 0.86 ppt, 0.35 ppt, and 0.23 ppt respectively to headline CPI inflation”, noted ANZ in a research report.

Meanwhile, core inflation also saw a strong rise in April, rising 5.92 percent year-on-year. Significantly, it has now stayed above 5 percent over the past four months. Stripping the housing component, core inflation came in at 5.20 percent, hinting at a widespread rise in core pressures in the month.

The headline inflation print affirms the view that inflation has bottomed out. Also, there are upside rises arising from higher crude oil prices, rise in minimum support prices for agricultural products and possible fiscal slippage.

“Accordingly, we continue to forecast one hike of 25bps in the policy repo rate in August. In fact the April reading also raises the odds of an earlier hike in the June meeting”, added ANZ.

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