CPI inflation falls to a 13-month low at 9.4% in April 2013 - Angel Broking

The combined (rural + urban) Consumer Price Index (CPI) inflation for April 2013 moderated to a 13-month low of 9.4% mainly on the back of moderation in food inflation. The index stood at 10.4% in March 2013, below a high of 10.9% rise reported in the February 2013. Both rural and urban inflation rates inched downwards to 9.2% (from 10.4% in March 2013) and 9.7% (from 10.4% in March 2013) respectively. We believe that moderation in CPI inflation is a key positive since it is likely to give the RBI more space for easing monetary policy. We expect the RBI to cut rates by an additional 25-50bp during the rest of FY2014. Also, CPI inflation affects purchasing power of consumers at the retail level and is more likely to be considered by households to determine the real interest rate on their savings. Therefore, the downtrend is positive since it could increase the share of households' financial savings which has fallen to 35.9% in FY2012 from a high of 51.9% in FY2008 while reducing preference for savings in unproductive physical assets which has reached 64.1% of total household savings in FY2012.

Break-up of the combined index: Inflation in food, beverages and tobacco having the highest weightage in the index of 49.7% cooled to 10.7% during the month as compared to 12.3% in March 2013 led by across-the-board deceleration in items including cereals, pulses, oilseeds, protein-rich products, vegetables, fruits, etc. However, inflation in cereals at 16.7% and pulses at 10.9% continues to remain elevated. Fuel inflation also decelerated to 8.1% during the month as compared to 8.3% in March 2013 Core CPI inflation (excluding food and fuel components) also moderated to 8.1% from 8.5% in the previous month.

Source : Equity Bulls

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