-- India: a par for the course May CPI print
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Unlike the IP surprise, May CPI printed exactly in line with expectations. The headline print moderated to 8.3% oya in May (JP Morgan: 8.3%, Consensus: 8.4%) from 8.6% in April. The moderation was both on account of a favourable base effect from the previous year as well as a slight dip in the sequential monthly momentum (+0.5% m/m, sa in May versus 0.6% the previous two months). But even as the quarterly, annualized momentum remains below the year-on-year rate, it ticked up in May to 5.9% q/q, saar from 4.2% q/q, saar the previous month.
There were no great surprises on the food front. For a second straight month, food prices rose 0.6% m/m, sa – in line with what the high frequency food price data had suggested – causing year-on-year food inflation to print at 9.3% oya – exactly what it has averaged over the last four months. The concern is that a deficient monsoon has the potential to cause food inflation to surge from already elevated levels.
Instead, all eyes were on core inflation. Here the news was mixed. The not-so-good news was that April core CPI was revised up from 7.8% oya to 8%. But the good news is that the momentum of core inflation ticked down for a second straight month to +0.4% m/m in May, sa from +0.5% in April and 0.7% in March. As a result of this, the quarterly annualized momentum of core has also softened to 7.6% q/q, saar from 8.3% in March. Within core, except for housing, the seasonally-adjusted monthly momentum of most components of core has softened meaningfully in the last two months (in the range of 0.2 to 0.4 %m/m, sa) except for housing. All this should give the RBI some comfort, but all eyes are now on the delayed monsoon.
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