Latest news with #RahulBajoria
Economic Times
33 minutes ago
- Business
- Economic Times
What will drive CPI lower in FY26? Rahul Bajoria explains
Rahul Bajoria, MD, BofA, says the new CPI series is expected to moderate food inflation's influence. Core inflation might see a slight increase. Headline inflation's volatility could decrease, though average inflation may persist due to rising per capita incomes and service consumption in India. Forecasting monthly inflation fluctuations might become simpler, reducing reliance on volatile food prices. Help us with your expectation regarding the CPI print and what do you think will drive the CPI lower for FY26? Rahul Bajoria: We are broadly in line with where the market is expecting inflation to be around 3% on headline, with core inflation likely to outstrip it by about 4.2% as well. The core message for us from the inflation trends in the recent months has been that food inflation which was really the problem in the last three years, appears to have finally been addressed with supply augmentation being quite visible, buffer stocks being quite good and then perishable prices particularly vegetables not really going through the typical seasonal pickup that we see in the summer months. All of this is coming together to put a dampener on inflation trends which is a very welcome news and it does kind of provide RBI a lot of leeway as far as their policy conduct is concerned and also probably helps consumer spending at the margin as we just put out this morning. We think that consumer spending will be a big beneficiary of low inflation trends which are likely to stay with us for the next three to six months as well. What is your take on the RBI's reduction of inflation for overall FY26 because in the April meet, they had pegged this at 4%. In their last hearing, it has come down to 3.7%. What are you making of this reduction from the RBI for the overall FY26 CPI print? Rahul Bajoria: This is broadly in line with what we are also expecting. We had reduced our inflation forecast just a month ago to 3.8%. To be honest, we are tracking it a little bit lower at this point, but you can never rule out some seasonal pickup in food prices later on, I mean, that is just the nature of the beast. But the core message that we took away was that inflation is essentially seen as quite under control in the current environment. Remember,we have not even seen any material pass through of lower energy prices into our retail fuel prices. So there is a fair amount of wiggle room that both the government and the RBI enjoys as far as inflation management for this year is concerned and so this does allow the central bank to really focus on reviving growth which seems to be the number one priority as things stand as far as policy conduct is concerned. Along with that, we are seeing good moves on the commodity side because given the fact that just yesterday, there was a great move on crude oil prices, even gold is seen as inching higher. What levels of crude oil and gold prices are you factoring in for your CPI projections? Rahul Bajoria: We took an average estimate of around $75 a barrel, which is a lot higher than where it is. But we need to distinguish between what is the actual price of oil and what is the pass through, that goes on, because what we have seen in the past cycles in the last few years is that the government does not necessarily pass it on as far as the benefit of lower oil or the problems of higher oil prices are concerned. We are in a very stable price regime as far as gasoline and diesel prices are concerned with a bias for it to move lower if lower oil prices persist. As for gold, we are expecting gold prices to move up. Our in-house forecasts are for gold to be around $4,000 per ounce by the end of this year which is in line with a view also that the dollar will probably weaken. But it is a bit of a double-edged sword as far as India is concerned because Indian households tend to have very high levels of gold, but it is also something that influences inflation at the margin. While we are talking about some factors that could affect CPI projections, how much will monsoon distribution impact the supply and what is going to be the food inflation prediction from your end? Rahul Bajoria: At this juncture, that is the biggest source of uncertainty. It always tends to be in the early parts of the monsoon cycle. What we are factoring in looking at the IMD projections is that availability of water, which probably is the most important factor and from a medium-term perspective, is not going to be a problem. We think food inflation should by and large move in line with the seasonal trends that we have seen in previous cycles when rainfall has been adequate. What we are watching out for is the impact of any excessive rainfall (since monsoon arrived a little bit early) has on the perishable price cycle because we could see supply damage, you could see a little bit of an incentive not to grow certain types of vegetables and that can have some impact on cyclical price trends. But overall, food inflation is going to be by and large under check for this particular year and some mean reversion is expected in the next year. But that is a problem only to be worried about maybe 12 months down the line. The new CPI series is expected to be published from the first quarter of 2026. Help us understand what changes do you expect? Rahul Bajoria: The impact of the new series is likely to dampen the impact of food inflation at the margin and core inflation is likely to become a little bit bigger. I am expecting it to probably reduce the volatility of headline inflation at the margin, but it may not necessarily lower the average inflation levels that we have seen mainly because as India's per capita incomes are growing, there is greater consumption of services, and durable goods tend to be less volatile in prices but their rate of inflation also tends to be a lot more sticky. My sense is that it will actually dampen the volatility that we typically see in headline inflation either from a sequential or from a base effect standpoint. But it may not necessarily lower the rate of inflation. It may not have a huge impact as far as policy deliberations are concerned, but it might become a little bit easier to forecast month-to-month gyrations which right now are very subjective to food price changes which tend to have a disproportionate impact in the way inflation forecasts are done. You Might Also Like: Nomura sees lower inflation in FY26 at 3.3%
Time of India
38 minutes ago
- Business
- Time of India
What will drive CPI lower in FY26? Rahul Bajoria explains
Rahul Bajoria , MD, BofA , says the new CPI series is expected to moderate food inflation's influence. Core inflation might see a slight increase. Headline inflation's volatility could decrease, though average inflation may persist due to rising per capita incomes and service consumption in India. Forecasting monthly inflation fluctuations might become simpler, reducing reliance on volatile food prices. Help us with your expectation regarding the CPI print and what do you think will drive the CPI lower for FY26? Rahul Bajoria: We are broadly in line with where the market is expecting inflation to be around 3% on headline, with core inflation likely to outstrip it by about 4.2% as well. The core message for us from the inflation trends in the recent months has been that food inflation which was really the problem in the last three years, appears to have finally been addressed with supply augmentation being quite visible, buffer stocks being quite good and then perishable prices particularly vegetables not really going through the typical seasonal pickup that we see in the summer months. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like If You Eat Ginger Everyday for 1 Month This is What Happens Tips and Tricks Undo Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track default , selected Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. All of this is coming together to put a dampener on inflation trends which is a very welcome news and it does kind of provide RBI a lot of leeway as far as their policy conduct is concerned and also probably helps consumer spending at the margin as we just put out this morning. We think that consumer spending will be a big beneficiary of low inflation trends which are likely to stay with us for the next three to six months as well. What is your take on the RBI's reduction of inflation for overall FY26 because in the April meet, they had pegged this at 4%. In their last hearing, it has come down to 3.7%. What are you making of this reduction from the RBI for the overall FY26 CPI print? Rahul Bajoria: This is broadly in line with what we are also expecting. We had reduced our inflation forecast just a month ago to 3.8%. To be honest, we are tracking it a little bit lower at this point, but you can never rule out some seasonal pickup in food prices later on, I mean, that is just the nature of the beast. But the core message that we took away was that inflation is essentially seen as quite under control in the current environment. Remember,we have not even seen any material pass through of lower energy prices into our retail fuel prices. So there is a fair amount of wiggle room that both the government and the RBI enjoys as far as inflation management for this year is concerned and so this does allow the central bank to really focus on reviving growth which seems to be the number one priority as things stand as far as policy conduct is concerned. Along with that, we are seeing good moves on the commodity side because given the fact that just yesterday, there was a great move on crude oil prices, even gold is seen as inching higher. What levels of crude oil and gold prices are you factoring in for your CPI projections? Rahul Bajoria: We took an average estimate of around $75 a barrel, which is a lot higher than where it is. But we need to distinguish between what is the actual price of oil and what is the pass through, that goes on, because what we have seen in the past cycles in the last few years is that the government does not necessarily pass it on as far as the benefit of lower oil or the problems of higher oil prices are concerned. Live Events You Might Also Like: Aurodeep Nandi on why Nomura is pencilling in 2 more rate cuts by December We are in a very stable price regime as far as gasoline and diesel prices are concerned with a bias for it to move lower if lower oil prices persist. As for gold, we are expecting gold prices to move up. Our in-house forecasts are for gold to be around $4,000 per ounce by the end of this year which is in line with a view also that the dollar will probably weaken. But it is a bit of a double-edged sword as far as India is concerned because Indian households tend to have very high levels of gold, but it is also something that influences inflation at the margin. While we are talking about some factors that could affect CPI projections, how much will monsoon distribution impact the supply and what is going to be the food inflation prediction from your end? Rahul Bajoria: At this juncture, that is the biggest source of uncertainty. It always tends to be in the early parts of the monsoon cycle. What we are factoring in looking at the IMD projections is that availability of water, which probably is the most important factor and from a medium-term perspective, is not going to be a problem. We think food inflation should by and large move in line with the seasonal trends that we have seen in previous cycles when rainfall has been adequate. What we are watching out for is the impact of any excessive rainfall (since monsoon arrived a little bit early) has on the perishable price cycle because we could see supply damage, you could see a little bit of an incentive not to grow certain types of vegetables and that can have some impact on cyclical price trends. But overall, food inflation is going to be by and large under check for this particular year and some mean reversion is expected in the next year. But that is a problem only to be worried about maybe 12 months down the line. The new CPI series is expected to be published from the first quarter of 2026. Help us understand what changes do you expect? Rahul Bajoria: The impact of the new series is likely to dampen the impact of food inflation at the margin and core inflation is likely to become a little bit bigger. I am expecting it to probably reduce the volatility of headline inflation at the margin, but it may not necessarily lower the average inflation levels that we have seen mainly because as India's per capita incomes are growing, there is greater consumption of services, and durable goods tend to be less volatile in prices but their rate of inflation also tends to be a lot more sticky. You Might Also Like: RBI lowers inflation forecast, but retains growth forecast My sense is that it will actually dampen the volatility that we typically see in headline inflation either from a sequential or from a base effect standpoint. But it may not necessarily lower the rate of inflation. It may not have a huge impact as far as policy deliberations are concerned, but it might become a little bit easier to forecast month-to-month gyrations which right now are very subjective to food price changes which tend to have a disproportionate impact in the way inflation forecasts are done. You Might Also Like: Nomura sees lower inflation in FY26 at 3.3%
Business Times
2 days ago
- Business
- Business Times
Weak inflation in Thailand, Indonesia and Malaysia fuels deflation fears
[SINGAPORE] After years of stable inflation, Asean economies that once battled surging prices post-pandemic may now be facing the opposite threat of deflation as global trade tensions and slowing growth weigh on demand. Thailand's annual inflation in May reflected negative growth for the second straight month, the commerce ministry reported on Friday (Jun 6). The consumer price index fell 0.57 per cent, following a 0.22 per cent fall in April – the first two negative prints since March the previous year. 'Core inflation remains below target, reinforcing the presence of slack in the economy,' said Bank of America (BOA) emerging Asia economist Pipat Luengnaruemitchai in a report following April's data. Malaysia and Indonesia announced in May that core inflation growth rates had dropped to 1.7 per cent and 1.5 per cent, respectively, missing economists' expectations of 1.8 per cent and 2.3 per cent, respectively. Indonesia had already recorded falling prices in February, the first in 25 years, sparking concerns of weakening purchasing power in the country. The Philippines recorded a similar trend. Headline inflation in April fell 1.4 per cent on the year, its lowest level since October 2019. These patterns have stoked concerns that deflationary spirals – much like China's struggles as consumer demand stalls – may arise, eroding incomes and corporate profits. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up But fears of deflation may be premature, given that the disinflation is largely due to easing supply-side pressures and not weakening demand, believes Rahul Bajoria, Asean economist at BOA. 'Food and energy prices have come down, labour markets have cooled, and currencies have stabilised. All of this is translating into lower inflation,' he told The Business Times. Made in China Nevertheless, concerns are beginning to creep into Asean countries as global trade tensions rise. Nomura's chief Asean economist Euben Paracuelles told BT: 'There are signs of structural forces at play, particularly disinflationary pressures from China's overcapacity and influx into the region of cheaper imports which can accelerate if US tariffs remain high.' Bank of Thailand governor Sethaput Suthiwartnarueput warned on Jun 2 that diverted exports from China that had failed to enter the US may be dumped into Thai markets, Nikkei reported. He highlighted industries in furniture, textiles and apparel, plastics, petrochemicals and steel that would be particularly vulnerable, with small and medium enterprises and their employees facing threats. 'A sudden flood of Chinese imports into emerging market economies can be very disruptive,' said Nomura economists Rob Subbaraman and Chen Yiru. 'Faced with growing cut-throat import competition, the likely initial response by local firms would be to cut prices to maintain market share, but at the cost of reduced profits.' 'This can be good news for consumers but over time, as local firms accumulate financial losses, they would need to downsize, cut back on jobs and capex, and ultimately many may need to close down.' China's latest manufacturing data may suggest that these upcoming fears are not entirely misplaced. Caixin China's manufacturing purchasing managers' index, a private survey which tracks the business conditions in the sector, reported a score of 48.3 on May 31, missing analyst expectations and reflecting an unexpected contraction – the country's first since September 2024. 'Stocks of finished goods accumulated for the first time in four months,' Caixin's report found. 'Survey respondents indicated that this was due to both falling sales and delays in outbound shipments of products.' As inventories build, the tariffs may force producers to cut prices in export markets besides the US – possibly Asean countries. 'As China's producers will likely push excess capacity to the rest of the world, the spillover of China's deflationary pressures to the rest of Asia will worsen,' wrote Morgan Stanley economist Chetan Ahya in the bank's mid-year outlook for the region. Yet BOA's Bajoria does not think of such pressures as a novel shock. 'This is a latent risk that's not just appearing now; it's been the case going back five or 10 years in South-east Asia,' Bajoria noted. A study by Nomura of the phenomenon in April may support this idea, finding that Chinese dumping had already been present as far back as 2019. 'Most of the countries that have experienced a slowdown in manufacturing growth also have an increasing share of manufactured imports from China,' said Nomura economists Subbaraman and Chen, who authored the study. Among the countries ranking the highest in both categories were Asean economies Indonesia, the Philippines, Thailand and Vietnam. Nonetheless, Bajoria believes that it may be premature to condemn Chinese presence in the region as unwelcome as the benefits may outweigh the costs. 'While consumption and inflation are impacted, the Chinese have also been reasonably large investors into the region, which may balance out the dumping concerns,' he added. He noted that cheaper exports can also offset some disinflation concerns by enhancing consumer purchasing power. It may also be difficult to attribute cheaper imports to deflated prices, rather than more competitive products. 'In Thailand for instance, imports from China have increased in competitive sectors like automobiles,' he explained. Easing policy Regardless of the causes of Asean's slowing prices, the region's central banks have taken advantage of lower inflation to boost growth through rate cuts, as the resultant higher prices become more manageable. Coupled with less risk of capital flight due to a weakening US dollar, disinflation has allowed central banks to be more accommodative in their monetary policies even as the US Federal Reserve maintains its rates, explained Bajoria. Singapore has already eased its policy slope, while Indonesia, the Philippines and Thailand have delivered rate cuts in recent months. Bank Negara Malaysia is expected to cut its policy rate further in the third quarter as growth eases, said ANZ economist Arindam Chakraborty, after holding rates in March. Still, central bank policy options vary by country. In Indonesia, large rate cuts could threaten the rupiah due to the risk of capital flight, Bajoria explained. As a result, the Indonesian government has turned to fiscal policy, offering toll concessions and subsidies to ease living costs. Yet, more insidious causes behind the region's low inflation, such as weakening consumer confidence and loss of manufacturing competitiveness, may translate into slower growth prospects. For Paracuellas, slower inflation may signal the presence of ailing demand, with tariff uncertainty weighing on investment and consumer spending, prompting producers to scale back on production. 'Output gaps are starting to be negative, partly on the back of global trade policy uncertainty already starting to weigh on domestic demand,' he said. 'The longer-term solution is for these countries to implement reforms to promote a more competitive manufacturing base that leverages their respective comparative advantages,' he added.
Reuters
10-03-2025
- Business
- Reuters
India inflation likely eased below 4% in February for the first time in six months
Summary Data due at 1030 GMT, March 12 BENGALURU, March 10 (Reuters) - India's February consumer inflation likely eased below the Reserve Bank of India's medium-term target of 4.0% for the first time in six months on moderating food price rises, a Reuters poll showed, bolstering expectations of interest rate cuts. As fresh winter produce hit markets over the past few months, food items - which make up nearly half of the inflation basket - saw a sustained slowdown in price increases. That marked a welcome reprieve from supply disruptions last year when unpredictable monsoons and intense heat waves sent food prices soaring, often by double digits. A Reuters poll of 45 economists taken March 4–10 predicted inflation as measured by the annual change in the consumer price index (INCPIY=ECI), opens new tab fell to 3.98% in February from 4.31% in January. Forecasts for the data, set to be released on March 12 at 1030 GMT, ranged from 3.40% to 4.65%, with nearly 70% of respondents expecting it to come in at or below the RBI's medium-term target of 4.0%. Only five predicted it would exceed January's reading. "We see a continued slowdown in vegetable price rises," said Gaura Sengupta, chief economist at IDFC First Bank. "The other, even more positive fact is that we are also seeing softness in pulse prices as well as cereals, which are the most sticky part of food inflation because their harvest season is not as frequent." With inflation comfortably within the RBI's 2–6% target range, economists say the central bank is likely gearing up for another interest rate cut in April to support slowing economic growth, following a quarter-point reduction in February. A separate Reuters poll showed it would be a short and shallow rate-cutting cycle. Meanwhile, warnings from the India Meteorological Department, opens new tab that summer and heatwaves could start early have raised concerns that inflation could rise again once winter supplies start to run out. "We do expect the correction in vegetable prices to start reversing possibly as early as March, with risks from heatwaves and weather-related disruptions to crops," wrote Rahul Bajoria, India & ASEAN economist at Bank of America. His team projects headline CPI inflation at 4.8% this fiscal year but expects it to edge down to 4.1% in the next year, with risks evenly balanced from lower commodity prices and a weaker rupee. That's in line with predictions of 4.8% and 4.3% in a Reuters poll conducted last month. Core inflation, which excludes the more volatile food and energy components, was expected to have inched up slightly to 3.82% year-on-year in February from January's estimated 3.70%. Wholesale price index-based inflation was expected to have risen to 2.36% in February from 2.31% in January, the survey showed.
