Retail inflation expected to moderate at 5%, trade deficit likely to improve, says report
The debate on the re-emergence of macro stability risks has intensified owing to the rising headline inflation, widening trade deficit and also the widening the fiscal deficit targets for both the current and next fiscals.
Mumbai: Retail inflation is expected to moderate and print at 5 percent after rising consecutively for five months, helped largely by seasonal dip in vegetable prices, while trade deficit is also likely to improve in January, says a foreign brokerage in a report.
Official data for consumer price inflation (CPI) for January, which stood at 5.2 percent in December last, would be released by government today.
Interestingly, while Morgan Stanley sees improvement in both inflation and trade deficit numbers in January, it has flagged concern that "moderate risks to macro stability are emerging on account of the wider-than-targeted fiscal deficits".
According to the brokerage, the debate on the re-emergence of macro stability risks has intensified owing to the rising headline inflation, widening trade deficit and also the widening the fiscal deficit targets for both the current and next fiscals.
"Against this backdrop, the attention on the incoming monthly data will likely be on the inflation and trade deficit prints," the brokerage said in the report.
"We expect headline CPI inflation to moderate to 5 percent year-on-year in January from 5.2 percent in the previous month, after rising consecutively for five past months", it said.
As per the report, high frequency indicators suggest that food prices have come off sequentially, largely driven by a seasonal dip in vegetable prices implying that food inflation will also moderate on a year-on-year basis to 4.5 percent from 5 percent in December.
At the same time, Morgan Stanley expects the trade deficit to have improved to $12 billion in January from $14.9 billion previously owing to robust global demand.
"Exports likely continued to grow at double digits for the third consecutive month, supported by robust global demand and favourable base effects," it said.
The brokerage expects exports to grow at 16.8 percent in January compared to 12.5 percent in December. It also noted that import growth is likely to have remained robust, growing at 19.2 percent from 21.5 percent in the previous month.
"Non-oil, non-gold imports (proxy for domestic consumption) is expected to have stayed strong at 24.6 percent versus 12.8 percent as domestic demand indicators such as car and two-wheeler sales growth was strong in the month," it added.
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