RBI Likely To Raise Rates By 35-50 Bps In Sept Policy: SBI
As the overall consumer price index (CPI) inflation increased to 7 per cent in August, the Reserve Bank of India (RBI) is likely to raise rates in September policy by 35 to 50 basis points, said the State Bank of India on Monday.
The SBI in a report said that beyond September, the bank is pencilling in a minimal and token rate increase as inflation is likely to fall in a jiffy in H2FY23.
With the rising prices, goods inflation (with the weight of 70 per cent) is moving in tandem with the overall inflation which grew by 7.9 per cent in August 2022, compared to 7.5 per cent in July.
In contrast, services inflation, which accounts for a weight of 30 per cent, is declining and is at 5.0 per cent in August 2022.
"This again substantiates that the current inflation is mostly supply driven. Among services, the contribution of housing and education prices is increasing, indicating the real estate market has now significantly recovered from the pandemic blues," it stated.
Also, the overall CPI inflation increased to 7 per cent in August largely driven by consumer food prices as rural and urban CPI surged as compared to July.
The report mentioned that the increase in rural CPI is more pronounced and increased by 35 bps month on month (MoM) to 7.15 per cent in August mostly due to a 312 bps (MoM) hike in cereals prices.
"A decomposition of CPI food inflation into sub-components showed that on a weighted contribution basis, the food inflation was driven by cereal products and vegetables. The seasonal impact of rains on vegetable prices was discernible," it stated.
According to the report, the prices of cereal have moved higher despite consecutive fall in cereal prices in international markets.
"Spatial variation in rains and acreages across crop segments has affected the prices movements. With the opening of sea routes in the Black Sea, there could be some moderation in cereal prices, but the general picture is not uniform across various cereal segments," it mentioned.
The most interesting trend is the negative growth in protein-rich items eggs and steady deceleration in prices of meat and fish.
This trend is rather surprising as the current period of high inflation is not driven by protein-rich items. Overall, with a resumption of good movement from the Black Sea the prices of various food items such as oil will see some moderation.
The report also stated that fluctuation in output due to climatic factors and the high cost of transport still underscores the need to be watchful of inflation in general.
