The much delayed CPI numbers are finally out and at 3.97 percent, it touched the highest level in FY18 thus far. That said, it is all pretty manageable for the policymakers, well below the target of 5.5 percent, as the 5-month average yearly CPI stood at 3.59 percent - down from 3.92 percent in the same period last year. On month-on-month basis, it cooled down to 0.37 percent.

Non-food non-energy core inflation remains north of 5 percent, clocking in at 5.5 percent, which is also precisely the FY18 average. Moreover, trimmed core inflation has also receded from its peak of 4.8 percent in May 2017 to a more manageable 4.2 percent. The base effect is in play, as CPI was on the higher side last year. 

Increase in prices of perishable food items contributed the most for any sub category. But on month-on-month basis, perishable food item prices actually recorded a decline of 1.24 percent, as the supply chain issues in September and October had earlier jacked up perishable prices considerably. This partly explains a modest increase in month-on-month inflation numbers.

The other key category of housing, electricity etc, with the second highest weight in CPI, recorded an increase of 4.85 percent, with the major chunk coming from the increase in house rent. This column has time and again raised questions over the correctness of house rent sub index as ground realities indicate house rents to have increased much more than just 6.4 percent in any span of 12 months. Moreover, the CPI tabulation takes no account of fuel price adjustment mechanism in electricity tariffs, which forms a considerable part of tariffs, and goes unreported - leaving room for considerable error on both sides.

For now, things seem well under control. But the devil may well be in the details as the broader picture of exchange rate and trade deficit appears grim. Commodity prices have woken up from the slumbers, and it should not be long before the transport category starts showing the impact of increased fuel prices via increase in transport service prices, which has not happened yet, but should be around the corner. The government may yet defer any upward revision in electricity or gas tariffs so close to the elections. But increase in motor fuel cost will continue to be inevitable, given the limited fiscal space and rising international oil prices. Expect inflation to stay under 4 percent for the 1HFY18 but things could change drastically in the second half of the year.