March CPI: Between 10.7-11.6

This may be very trivial come April 1, 2020 but headline national CPI is expected to be between 10.7-11.6 percent for March 2020. Under usual circumstances, any inflation projection with nearly two-third based on already announced and tabulated numbers – should come in handy.

The SPI for the relevant weeks for CPI purposed, shows a sizeable cut in food prices, on month-on-month basis. But the vegetable prices are expected to weigh considerably on perishable food inflation, as potato and onion prices are up by over 100 percent year-on-year. Non-perishable food prices have also jumped considerably, primarily for wheat, oil and ghee – showing increase as high as 30 percent year-on-year.

Other than food, price change for sub-indices such as transport, house rent, and utilities are already available to a great extent – making at least 60-65 percent of CPI basket prices known. All other non-food non-energy prices are reasonably assumed to have changed by average rate of the past month. It remains to be seen if the PBS considers accounting for the last week relief in petroleum prices – as by the manual, transport prices for the month are taken between the 7^th and 10^th of every month. Should that be included, another 0.2-0.3 percentage points stand to be shaved from the expected number.

A big respite is also expected from electricity tariffs, which was likely to have been lower for the month, as the government has halted the process of monthly Fuel Price Adjustment (FPA). A 13 percent year-on-year reduction in electricity prices is the likely scenario, as FPA for March 2019 was on the higher side. Urban consumers will continue to face 54 percent year-on-year increase in gas prices, whereas the impact of LPG and firewood prices is more profound on the rural consumers.

For some odd reason, the food index change for both rural and urban CPI – does not add up to the sum of parts. The rural headline inflation has historically been underreported by 1 percentage point – whereas that for urban by 0.8 percentage point. Should that continue, National headline inflation for March 2020 could be down to 10.7 percent – getting closer to single digits.