India's Inflation slowed for third straight month - Microsec

India's Inflation slowed for the third straight month in April 2013 to 4.89 percent YoY, near to 3.5 year low against 5.96 percent YoY in the previous month. Though the lower base effect supported the headline print, slowdown in price level was also witnessed across all broad categories. Reflecting the decline in commodity prices, Core Inflation dropped for the eighth straight month to 2.7 percent YoY.

During the month, the Wholesale Price Index (WPI) increased to 171.5 from 170.6 in March 2013, registering a sequential rise of 0.53 percent as the prices of vegetables and fruits increased sharply. The WPI price momentum is in line with the CPI for April 2013. CPI Inflation stood at 9.39 percent YoY in April against 10.39 percent YoY in March, which marked a 0.5 percent MoM rise in the index.

However, following the trend of earlier revisions, WPI for the month of February 2013 has been revised upwards sharply by 44 basis points to 7.28 percent YoY, owing to revision across categories. Earlier, Inflation for January 2013 was also revised similarly by 71 basis points. During February 2013, WPI was revised to 170.9 against the earlier reported number of 170.2. Among the categories, Inflation rates for Primary Articles was revised upward to 10.54 percent YoY from 9.70 percent YoY reported earlier. Inflation rate for Fuel, Power, Light and Lubricants was revised upward to 10.64 percent YoY from 10.47 percent YoY. Inflation rate for Manufactured Products was also revised upward to 4.80 percent YoY from 4.51 percent YoY.

Outlook: Continuing the underline trend of softening, India's WPI Inflation fell below 5.0 percent YoY. We expect WPI Inflation to contain around this level as growth momentum is unlikely to pick up significantly in FY2013-14. Favorable base effect and a normal monsoon will also help to moderate Inflation going forward.

Policy Outlook: Weakness in growth and moderation in WPI as well as CPI Inflation raise expectation of rate cut by Reserve Bank of India (RBI) at its June 17, 2013 policy meeting. However, sharp widening in Trade Deficit (USD17.8 billion for April 2013) and the risks from the Current Account Deficit provide some discomfort against steep rate cuts.

Source : Equity Bulls

Keywords