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INDIA: Vegetable Price Spike Expected to Impact Overall Inflation

INDIA
  • Delays in the monsoon pose a risk to near-term inflation, after a prolonged heat spell hurt vegetable production and resulted in price spikes in various parts of the country. JP Morgan note that while the weight of vegetables in the CPI basket is not large (6%), the sheer amplitude of the vegetable price shock means it will impact overall inflation. 
  • They add that June CPI inflation had been expected to be close to 4.5% y/y but is now seen closer to 5%. Furthermore, inflation was expected to fall sharply in the coming due to base effects but now the dip is likely to be more modest.
  • JP Morgan note that the RBI typically would look through surges emanating from volatile vegetable price inflation. However, this time around, the RBI is already concerned about the frequency of the food price shocks, and another shock would only add to the central bank’s food inflation worries. The unexpected monsoon underperformance risks pushing out monetary easing from 3Q24 to 4Q24, they add.
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