CPI Inflation Update - May 2013 - IDBI Capital

- The headline CPI inflation (combined) for May 2013 eased to 9.31% (y-o-y) from 9.39% (y-o-y) seen previous month. The reading has come in higher than our in-house expectations of 9.13% (y-o-y). The pace of increase in index for May showed upward move to 0.86% (m-o-m) from 0.47% (m-o-m) seen in April. The pace of increase quickened for food products and fuel & light. The CPI inflation ex-food was placed at 8.1% for May 2013, while the core CPI inflation was seen at 8.0%.

- The headline CPI for April (combined) was largely unchanged. However, the internals showed upward revision in prices of vegetables, egg, fish & meat, medical care, transport & communication, education & stationery, and personal care & effects.

- The contribution by food items in the combined index rose considerably in the current month to 73% from 65% seen a month back. For the current month, the biggest contribution under food segment came from vegetables, followed by cereal & products. After food the biggest contribution was made by fuel & light segment.

- In the rural areas for May, some of biggest m-o-m increases were recorded by fruits (1.07%), pan, tobacco & intoxicants (0.81%), cereals & products (0.80%), and transport & communication (0.56%). However, there was also decline observed in prices of sugar by 1.06% (m-o-m).

- In the urban areas for May, the biggest m-o-m increases were seen under vegetables (10.19%), and pan, tobacco & intoxicants (1.49%). However, there were also significant m-o-m declines observed under transport & communications (1.24%), and oil & fats (0.83%).

- For May 2013, the state wise biggest uptick, in the rural segment, was noted by Mizoram (1.8%, m-o-m), while biggest decline was noted by Chandigarh (0.5%, m-o-m). For May2013, the state wise biggest upside, in the urban segment, was noted by Andaman & Nicobar (2.9%, m-o-m), while the biggest decline was seen by Uttarakhand (0.2%).

- The CPI index in the current month came in lower than previous month largely on account of a base effect. The price pressure continued in the food category. This is expected to weigh on the monetary policy outlook. However, a good start to the monsoon season recently is expected to reign in fears over food inflation. Nonetheless, developments on food inflation would also be shaped by the policies adopted by government over the setting of MSPs as well as improving the storage & distribution infrastructure for food grains. We expect the RBI to maintain status quo on interest rates at the upcoming Mid-Quarter Review. We then expect the RBI to ease rates by 25bps at the First Quarter Review scheduled in July 2013. This decision should be aided by the possibility of headline CPI inflation (combined) falling below 9% mark June onwards.

Source : Equity Bulls

Keywords