Uptick slower-than-expected… Key readings… ƒ :: ICICI Securities, report

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Uptick slower-than-expected…
Key readings…
ƒ CPI December 2014 at 5% was slower than market expectation of uptick
to 5.2%. While YoY inflation hastened, MoM CPI declined 0.41%
ƒ CPI food inflation (CFPI) declined 1.3% MoM while on account of waning
base YoY inflation moved up to 4.7% from 3.1% (November 2014)
ƒ WPI stayed at zero as on a high base vegetable index de-grew 5% YoY
while the fuel group declined 7.8% YoY. Also, the WPI index continued
to decline for the fourth consecutive month by ~1%. Core WPI further
eased to 1.6% aided by a drop in global commodity prices
CPI: Waning base effect nudges up YoY inflation; MoM on decline mode
ƒ CPI December 2014 accelerated to 5% primarily due to a weakening
base (CPI index registered a 100 bps fall over Nov-December 2013)
ƒ CPI MoM was down 0.4% and CPI food inflation was down 1.32% MoM.
The food index has been on a declining trend since September 2014
ƒ Even in other major components like housing & clothing, inflation
moderated to 7.84% and 6.44% from close to 8% as on September 2014
ƒ Core CPI through CY14 has moderated to 5.3% (YoY December 2014)
from 8.1%. Inflation in transport component (weight: 7.5% in CPI)
dropped to 1% from over 7% backed by a fall in petrol and diesel prices
ƒ CPI urban and rural for December 2014 also inched up to 5.32% and
4.7% from 4.6% and 4.1%, respectively
WPI: At zero on decline in primary articles, global commodity prices
ƒ WPI December 2014 was flat at zero. Primary articles inflation inched up
2.2% YoY on a fading high base while the fuel index registered a sharp
7.82% deflation. Core WPI moderated to 1.5% from 2.2% aided by a
sequential drop in price of major raw material commodities like rubber,
metal, minerals, etc
ƒ Drop in crude oil prices (Brent crude price down 50% in CY14) and
global commodity prices (IMF commodity index down 30% in CY14) has
aided moderation of WPI to 0.1%
Expect rate cut in upcoming February policy
Both CPI as well as WPI December 2014 have beaten the market
expectations positively. Going ahead, as the benefit of favourable base effect
wanes off, we may see CPI marginally picking up to around 5.6% in the next
couple of months. However, we believe lower global commodity prices and
the government’s action in the form of rational utilisation of buffer stocks,
immediate action on import allowance of commodities facing supply
pressure, creation of price stabilisation fund, etc, to control domestic price
shocks may cumulatively deter domestic inflation from accelerating at a
faster pace. While the near term inflationary expectation have moderated
aided by benign global commodity price outlook including that of crude,
moderate MSP hikes and consequent moderate rural wage growth, the
concern over the government not achieving its fiscal deficit target and
currency volatility remain risks to the long term inflation outlook.
CPI is broadly hovering around the RBI’s projection of 6% and has well
stayed on its deflationary path. Hence, we believe the RBI will cut rates by 25
bps in the upcoming policy and utilise the limited room to push growth.

LINK
http://content.icicidirect.com/mailimages/IDirect_Inflation_Jan15.pdf