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The Economy Observer: September inflation unchanged, August IIP surprises on the upside

  • CPI inflation remained unchanged MoM at 3.3% in September 2017. This was marginally higher than our expectation of 3.2%, but lower than market consensus of 3.6%.
  • Food inflation eased slightly to 1.3% in September 2017, while core inflation touched a six-month high of 4.6%. The uptick in core inflation was largely on account of a surge in housing inflation.
  • Furthermore, the index of industrial production (IIP) grew 4.3% YoY in August, exceeding our/consensus estimate of 2.4%/2.6%. A    recovery was observed in manufacturing, along with a surge in mining activity and electricity generation.
  • We expect headline inflation for 2HFY18 to remain in line with the RBI's projections, but also see some downside risks. Hence, we believe that there is still some room to cut interest rates.