The recent jump in India’s consumer price inflation has taken us (and most others) by surprise and we have revised up our near-term forecasts. However, a big chunk of the surge – even in the most closely-watched core measure – can be explained by rising global commodity prices, which we think has largely run its course. Further ahead, a (likely) strong monsoon harvest and a still-large output gap should help to anchor headline inflation and relieve pressure on the RBI to tighten policy any time soon.
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