Motilal Oswal: CPI Inflation In July Much Higher Than Expected; Broad-Based Higher Headline Inflation A Cause For Concern  

Motilal Oswal Report

Headline inflation came in at 6.9% YoY in July 2020 (versus 6.2% YoY in June 2020), much higher than our expectation of 5.9% YoY and market consensus of 6.3% YoY, driven largely by higher ‘vegetable’ inflation.

Core inflation also remained at an unexpectedly elevated level. Food inflation (excluding non-alcoholic beverages and prepared meals) in July 2020 stood at a three-month high of 9.6% YoY versus 8.7% YoY in June 2020, driven by higher ‘vegetable’ inflation.

After declining to 4% YoY in June 2020 from 23.6% YoY in April 2020, ‘vegetable’ inflation came in at 11.3% YoY in July 2020. What was more worrying is Consumer Price Index (CPI) excluding vegetables reached a 71-month high of 6.6% YoY in July 2020 versus 6.4% YoY in June 2020.

Alarmingly, core inflation (inflation in 'housing, 'clothing and footwear', and 'miscellaneous Items' combined) came in at a 19-month high of 5.5% YoY in July 2020, against 5% in June 2020, driven largely by ‘transport and communication’ within ‘miscellaneous’ items.

Inflation in ‘housing’ moderated to 3.3% in July 2020 from 3.5% in June 2020; in ‘clothing and footwear’, it rose to 2.9% YoY in July 2020 versus 2.7% in June 2020.

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