SBI Ecowrap - CPI inflation to be below 2%


Brief highlights of the report:

As expected consumer price inflation breached the 2.5% mark to come in at 2.18% in May’17. This decline in CPI was primarily due to decline in prices of food and beverages (-0.22% compared to 1.21% in Apr’17). Meanwhile, the core CPI decreased to 4.25% in May’17 compared to 4.53% in Apr’17.

We believe that most inflation risks are now on the downside. In fact a comparison of food prices in the last 3 years indicates that food prices are now lower than the average and prices are not even mean reverting but mean reversing/ lower than the mean. When compared to Oct’16 food prices with the 3 year average, the prices have barely moved. Thus the impact on food prices seems permanent.

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The report has been authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

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