WPI inflation eases further in May-2013 - ICICI Bank : Treasury Research

- Headline inflation came in at 4.70% YoY in June 2013, lower than our expectations of 5.0 - 5.1% YoY and previous month's print of 4.89% YoY. The March print was revised down to 5.65% YoY from 5.96% earlier.

- Primary inflation increased to 6.7% YoY in May from prior 5.8% YoY with food inflation rising to 8.3% YoY, from 6.1% YoY earlier.

- Fuel inflation edged lower to 7.3% YoY in May from 8.8% in the previous month, mainly on account of a drop in the non-administered component.

- Manufactured products inflation fell to 3.1% YoY, lowest since November-2009. Moreover, core inflation dropped to 2.4% YoY, lowest level since January 2010.

- While inflation continues to remain benign, we believe that the RBI will maintain caution and keep rates unchanged in the June meeting, given the sharp depreciation in Rupee amidst FII debt outflows and elevated trade deficit.

- We continue to maintain our call of 50 bps additional repo rate cut in balance FY2014 with a high probability of 25 bps cut in the July meeting. We expect the RBI to closely watch the market moves, June trade deficit and progress in monsoons given the elevated food inflation ahead of the July 30th review.

Source : Equity Bulls

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