Inflation at multi-year lows! :: ICICI Securities, link

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CPI .......................................................................................... eases to 4.4% from 5.5% YoY
WPI ............................................................................................. eases to 0% from 1.8%YoY
Inflation at multi-year lows!
Key readings…
ƒ CPI November 2014 as expected eased to 4.38% -lowest since its release
ƒ The November 2014 CPI food inflation (CFPI) softened to 3.2% from
5.6%. Core CPI was marginally down to 5.51% from 5.86% in October
ƒ WPI became zero as inflation moderated across components. Fruits &
vegetables saw deflation of 11.8% YoY and the fuel group by 4.91%
YoY. Core WPI eased to 2.20% from 2.55% in October 2014
CPI: MoM decline in food inflation, favourable base ease CPI for third
consecutive month
ƒ CPI November 2014 eased to 4.3% as food inflation was down to 3.16%
from 5.6% led by a near 2% decline in prices of vegetables each month
in the past three months and a favourable base effect (October 2013
CFPI:15%YoY)
ƒ Even in other major components like housing & clothing, inflation
moderated to 7.93% and 6.97% from 8.04% and 7.45%, respectively
ƒ Core CPI further eased to 5.5% registering a seventh consecutive month
of moderation. Inflation in transport component (weight: 7.5% in CPI)
dropped to 1.8% from over 7% backed by cut in petrol and diesel prices
ƒ CPI urban and rural for November 2014 also moderated to below 5%
each at 4.69% and 4.09%, respectively
WPI: At zero aided by YoY fall in price of vegetable and mineral oils
ƒ WPI November 2014 came in at zero indicating YoY there is no change in
wholesale prices when all commodities are put together. Primary articles
inflation declined 0.98%(YoY) so the fuel index deflated 4.9%. Core
inflation also moderated to 2.2% from 2.5% indicating that moderation
was across board
ƒ MoM decline in vegetable and fuel prices and a soaring base so far led to
a YoY decline in primary articles and fuel group inflation
ƒ Core WPI also eased to 2.2% from 2.5% supported by a moderation in
global commodity prices (IMF commodity index down 17% YoY) and a
stable rupee
Expect rate cut in upcoming February policy
Both CPI as well as WPI November 2014 are at multi year lows. Going ahead,
the benefit of favourable base effect will wane off and we may see the
inflation reading marginally picking up. However, we believe lower global
commodity prices and efforts of the government in the form of rational
utilisation of buffer stocks, immediate action on import allowance of
commodities facing supply pressure, etc, to control domestic prices may
cumulatively deter domestic inflation from accelerating at a faster pace.
RBI in its last monetary policy lowered its inflation projection for March 2015
to 6% while maintaining its January 2016 CPI inflation target at 6% with risk
to target being evenly balanced. It further said that “if the current inflation
momentum and changes in inflationary expectations continues and fiscal
developments are encouraging, a change in the monetary policy stance is
likely early next year, including outside the policy review cycle”. We expect
the current inflation momentum to continue and the RBI will signal a change
in policy stance in upcoming monetary policy with an initial 25 bps rate cut.

LINK
http://content.icicidirect.com/mailimages/IDirect_Inflation_Dec14.pdf