Inflation - Core declines; agri needs monitoring :: Edelweiss PDF link

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WPI inflation remained stable at ~6.9% YoY in March, broadly in line with our and market expectation. Core inflation has declined below 5%, as expected, but key highlight was rise in primary articles inflation (food and non food articles) both YoY and MoM. This causes some concern and needs to be monitored closely in the coming months, as any sustained spike in agro inflation can materially alter the inflation outlook for FY13.

In coming months, we see headline inflation hovering at current levels. Key risks to the outlook arise from poor monsoons or another spike in commodity prices, perhaps due to another round of QE. In terms of monetary policy tomorrow, the declining trajectory of demand-driven inflation and faltering investments should lead to 25bps repo rate cut by RBI, although CRR rate is likely to be left unchanged.

Inflation - Core declines; agri needs monitoring

Regards,