India's CPI Inflation Set To Ease To 18-Month Low In April

India's retail inflation is set to recede to under 5% in April, led by the base effect.

Consumer price index-based inflation is forecast to fall to 4.76% in April from 5.66% in March, according to a Bloomberg poll of 36 economists.

Retail inflation will be the lowest since 4.48% in October 2021 if it's in line with Bloomberg estimate.

It will also be the second straight month that retail inflation remains within the RBI's target range of 4 (+/- 2)%.

A high base and sequential moderation in energy costs are likely to bring headline inflation down in April, according to Rahul Bajoria, chief economist at Barclays, who forecasts inflation at 4.8% year-on-year, down from 5.7% in March. Teresa John, economist at Nirmal Bang Institutional Equities, also expects CPI inflation to print at 4.62% in April due to a high base and sequential moderation in food items such as cereals, oils, and fats.

According to high-frequency data from the department of consumer affairs, atta and several pulses continued to see a sharp rise in prices from a year ago, though prices of atta fell from a month ago. Prices of key vegetables—potatoes, onions, tomatoes, and edible oils—fell on an annual basis a month ago.

Looking through the expected drivers of the April inflation print, food prices are estimated to have risen by 0.5% month-on-month, compared with the 0.2% increase seen in March, according to Barclays.

Core inflation, excluding food and fuel, is expected to inch down, but at a slower pace than headline, falling to 5.3% year-on-year in April from 5.7% in March, mostly due to a high base in motor fuel costs, according to Barclays.

Gold prices also continued to witness an uptick, which will add to the sequential momentum in core inflation, John said, forecasting core inflation at 5.13%.

WPI inflation is likely to slip into negative territory at -0.6% year-on-year in April compared to 1.34% in March due to a high base and some easing in industrial commodity prices, she said.

Assuming that the April CPI inflation is likely to print below 5%, given the effective tightening of short-term rates by more than 25 basis points, despite the repo rate being held steady at 6.50% in the April policy, there is no strong justification for the RBI to continue with further rate hikes, said Kaushik Das, chief economist at Deutsche Bank.

"While a potential poor monsoon could pose a threat to the inflation trajectory in the future, we think rates are sufficiently high to anchor inflationary expectations, and therefore any temporary spike in CPI will likely be seen through", Das said.