Retail inflation in India expected to average at 5.2 pc 2023: Emkay

Emkay Institutional Equities, a part of Emkay Global Financial Services, expects India will likely witness a sub-five per cent inflation in the early part of 2023, with an average rate of Consumer Price Index at 5.2 per cent for the entire calendar year. The RBI's monetary policy actions, forecast of a normal monsoon this year, and supply-side constraints getting addressed will help with ease in inflation in India, the research house Emkay said.

Lead Economist at Emkay Global Financial Services Madhavi Arora led a media roundtable around the outlook for the Indian economy, the next steps of the RBI, the impact of the US Fed hiking key interest rates, the Indian rupee, and the inflation trajectory in India. "Retail inflation is likely to ease well below the 6 per cent aim of the central bank. The CPI inflation will likely slip below the 5 per cent level later this year and average 5.2 per cent for CY23," it said.

In India, headline consumer price index-based (CPI) inflation (or retail inflation) has gradually declined from its peak of 7.8 per cent in April 2022 to 5.7 per cent in March 2023. Assuming an annual average crude oil price (Indian basket) of USD 85 per barrel and a normal monsoon, CPI (or retail) inflation is projected to moderate to 5.2 per cent for 2023-24 in India as estimated by RBI in its April monetary policy meeting; with Q1 at 5.1 per cent; Q2 at 5.4 per cent; Q3 at 5.4 per cent; and Q4 at 5.2 per cent.

Under the flexible inflation targeting framework introduced in 2016, the RBI is deemed to have failed in managing price rise if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row. India's retail inflation was above RBI's 6 per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.

On US Fed's possible stance, the research house Emkay said the US central bank is expected to remain "static" in the coming months and cutting rates by early next year. It also believes the US will face a "moderate recession" with a hard landing. Emkay Global believes the fear that "speed can kill" has led to a dovish turn from a number of central banks in both developed and emerging markets.