India Inflation Update –January 2023

20 Feb 2023

The January CPI inflation print came in at 6.52%, which is higher than Citi analysts' estimate of 6.2% and the consensus of 6%. The CPI upside surprise was led by higher-than-expected growth in food inflation. Vegetable prices continue to fall, but not as much as historical trends. CPI ex-vegetables increased by 50 basis points to 7.8% year on year in January 2023. This is the highest growth since mid-2014. Citi analysts revise their headline inflation forecast up by 60 bps to 6.2% for 4QFY23 and 5.1% for FY24 (+20 bps).

• 1. January 2023 headline inflation rose to 6.52%: The increase in YoY inflation of 80 basis points is due to an increase in momentum (50 basis points) and the base effect (30 basis points). The core inflation rate remains sticky at 6.1% YoY. Food inflation rebounded after 3 consecutive months of falling, to 6.2% YoY in January 2023 (+160 bps). Vegetable inflation fell by 3.8% MoM, compared to a seasonal trend of 6.7% fall MoM. Food inflation remains elevated; despite the fall in vegetable prices, the CPI ex-vegetables rose to 7.8% YoY (+50 bps) in January 2023. This is higher than the recent peak of 7.4% (April 2022) and the highest since mid-2014.



• 2. Sticky Core Inflation:
• a. Seasonally adjusted inflation momentum in core ex transport and gold was 0.44% MoM in January 2023 versus 0.34% in December 2022.
• b. Core CPI goods growth came in at 0.56% MoM.
• c. CPI housing inflation growth came in at 0.37% MoM (vs. 0.21% prev.)
• d. Citi’s CPI diffusion index shows that YoY inflation rose in items weighing 62% of the CPI basket in January 2023 versus 45% in December 2022.


• 3. Inflation forecast: With the January 2023 CPI print at 6.52% and the February 2023 expectation at 6.4-6.5%, Citi analysts revise their 4QFY23 forecast to 6.2% (up 60 bps), 5% YoY for 1HFY 24 (up 40 bps), and 5.1% for FY 24 (20 bps). Citi’s CPI forecast is still somewhat below the RBI’s estimate for almost all quarters of FY24 as they expect some normalization in inflation momentum for Core CPI and CPI Food (ex. vegetables).



• 4. April 2023 Monetary Policy: With the change in the January 2023 CPI print of 6.52% and February 2023 expectations at 6.4-6.5%, which is above the RBI’s tolerance band again, Citi analysts expect another 25 bps rate hike in the April 2023 MPC meet.." Based on current and expected inflation prints, RBI may likely continue its "withdrawal of accommodation" stance in April.