India: Upside risks build as price pressures broaden – Societe Generale

Societe Generale economist Kunal Kundu expects India’s April headline Consumer Price Index (CPI) inflation to rise to 3.9% year-on-year from 3.4% in March, driven by food-and-beverages and fuel components. He highlights conflict-related energy shocks, supply-chain stress in vegetables and edible oils, and emerging pipeline risks from fertilisers, El Niño-linked weather and low dam storage as key upside threats to India’s inflation outlook.

Food, fuel and weather risks lift CPI

"We expect India’s headline CPI inflation for April to print at 3.9% yoy, a notable step-up from 3.4% yoy in March. We attribute this rise to conflict-related price pressures and a renewed firming in food-and-beverages (F&B) and fuel-linked components after a benign stretch. While inflation would still be within the RBI’s tolerance band, the upward drift reflects the first clear pickup that emerged in March, largely driven by these two channels."

"The near-term narrative begins with food, given its outsized weight in the CPI basket and the fact that recent month-to-month volatility has been led by perishables and key cooking inputs. There is a visible firming in select vegetables (e.g., tomatoes and cauliflower), and there is a meaningful risk that broader supply-chain stress could begin to filter into the overall food bill. Historically, when vegetable and edible oil prices rise in tandem, the impulse tends to become more broad-based within food (fresh and processed), reinforcing food inflation as a key propagation channel into headline CPI."

"We expect the April CPI print to offer a clearer read on the energy impulse, even though India’s administered fuel pricing may mute immediate retail transmission. That said, while the operation Epic Fury may be over, true economic pain will manifest in the months ahead. Over time, however, inflationary effects can still surface through (i) LPG and household fuel adjustments, and (ii) higher freight and input costs that gradually feed into goods and services pricing."

"Beyond immediate food/fuel prints, we are monitoring pipeline risks, notably fertilisers and imported agricultural input prices, as these would likely shape inflationary expectations of households over the coming month. This is especially relevant as the economy faces triple whammy of i) costly and sparse availability of fertilisers, ii) heatwave and potential monsoon failure exacerbated by among the strongest El Niño seen in recent history and iii) a sharply lower water storage capacity in major dams."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)