Offering some much-needed breather, CPI inflation edged lower, moderating slightly sequentially, to 6.83% (SBI estimate: 7.0%) for Aug’23 (7.44% in Jul’23). The moderation in CPI is mainly in food and beverages with vegetables and cereals exhibiting the most restraint though meat, fish, and spices CPI are still at elevated levels. Core CPI for the second consecutive month is at below-5% mark and stood at 4.86% in Aug’23. It is still below the one-year average of 5.62%.
Given the spatial distribution of monsoon and its impact on Kharif sowing and subsequently on cereals inflation, as also steep decline in LPG prices offsetting CPI by 25 bps, we see good case for retail inflation to slouch towards RBI’s tolerance zone.
A note of caution, though, is the asymmetry in inflation amidst various states with 13 out of 23 states reporting higher inflation than national average. Interestingly, this asymmetry is always in existence when we look at headline inflation across states.
The good thing is that SBI’s “CPI Concentration Index” results show that estimated Concentration CPI is consistently less than the Core CPI since Jan’15. For Aug’23, our CPI concentration is 112 bps less than the core CPI.
Only for a brief period beginning Jan’20 till Nov’20 and also during the pandemic as supply disruptions weighed heavily, the estimated concentration CPI was higher than the core CPI. Our findings now firmly confirm that it is thus incorrect to infer that Industrial Concentration dictated pricing capacity of larger firms, a hypothesis touted by Viral Acharya sometime back.
The recently held e-auction of rice and wheat under OMOs elicited good response and price discovery, augmenting GoI’s efforts to lower retail prices marred by aggravated El Nino events. While overall rainfall is 10% below normal till now (due to 35% deficit rains in Aug), the spatial distribution is quite even. Out of 36 states/UTs, 25 received normal rains so far. Our “SBI Monsoon Impact Index / MI”, with present value of 87.4 fares much better than 2022 full season MI Index at 60.2.
The average absorption of liquidity reduced to Rs 79,600 crore on 8 Sep’23 with government surplus cash balances at Rs 1.8 lakh crore and thus system liquidity surplus coming down to Rs 66,410 crore by 8 Sep’23. Accordingly, the RBI has decided to reduce the ICRR incrementally in a month, thereby freeing up capital for banks.
The industrial production based on IIP registered a growth of 5.7% in July 23 from 3.8% in June 23. The mining sector recorded a growth rate of 10.7% in July 23, manufacturing sector also witnessed growth of 4.6%. In FY24, Both Mining and Electricity sectors are on a continuous growth path.
