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Barclays: Sep inflation may be moderated by a decrease in the prices of perishables to 4.62%

Barclays stated Wednesday that a correction in the prices of perishables within the food basket could result in a moderated CPI inflation of 4.62 percent year-on-year.

According to an investment banker who focused on India, a fall in the prices of perishable food should further ease inflation in September. However, a variety of temporary shocks should increase core inflation.

India’s import basket continues to be under pressure from the rising global commodity prices. Barclays reported that CPI inflation is expected to average 5.4% in FY2021-22, with risks balanced.

The government should find the September inflation projection of 4.62 percent comforting, as there have been many factors that have pushed up the economy’s pressure. The September numbers will not bring inflation closer to the RBI’s comfortable zone of 4 percent.

For the past few months, CPI inflation has been moving in a downward direction. It was at 5.59% in July and 5.3 percent in August. Analysts believe that the low base effect is responsible for the downward trend in inflation. After November, the high base advantage from last year’s year should disappear. This should be corrected. The projections are that inflation could rise again in FY22’s fourth quarter.

Food inflation in September would have fallen to 1.7% y/y, which would make it the lowest level in nearly 29 months. Barclays stated that if the positive trend in food prices continues into October, the headline inflation could fall again, pushing it below 4 percent y/y in October. This is due in part to a low base.

However, core inflation may continue to rise and could rise further in September because of pressure on fuel prices. These prices have risen to multi-year highs.

Many state governments have opened schools again, which could lead to an increase in tuition fees. Temporary price increases may also be observed in motor vehicles (due regulatory changes) or telecom services (dues to ongoing price revisions).

“We expect that the rise in healthcare costs will remain substantial. According to the report, the banker stated that core CPI inflation will rise to 6.4% y/y in September.

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