CPI Inflation - Eases Significantly Across The Board :: Edelweiss PDF link

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CPI inflation in September came in at ~6.5% YoY (Edel: ~6.8%; consensus: 7.2%) versus ~7.7% in August. The 120bps easing in September was both on core CPI (90bps) and food inflation fronts (150bps). Within food, while vegetables led the decline, the easing was significant across the board, (despite 7% contraction in kharif output) with cereals and protein rich such as eggs, meat and fish dis-inflating by 90bps and 130bps, respectively. As for core CPI, it was the lowest print of the 33-month old series and disinflation was broad-based.

Going ahead, the next couple of CPI prints could be sub 6% owing to high base. Post November, as the base effect reverses, we expect CPI to rise back to ~7% by January 2015 (100bps below the RBI’s target). Further, we reiterate that 4 exogenous factors which are largely responsible for the inflation bout in past few years– government’s MSP/procurement policies, international food prices, retail fuel price hikes and currency depreciation are reversing at the same time, leading to strong disinflation. Hence, we see limited upside risks to the RBI’s Jan 2016 target of 6%.

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