Inflation continues to tread positively - Angel Broking

The Wholesale Price Index (WPI) based inflation moderated for the fourth straight month in May 2013 to 4.70% as compared to 4.89% in the previous month and 7.55% in May 2012. Owing to benign commodity prices as well as a break-down of pricing power in manufacturing, headline WPI inflation is now within the 5% comfort zone for the second consecutive month, since its spike post Nov 2009. The moderation is led by core inflation which eased for the ninth straight month to 2.4% as compared to 2.7% in the previous month and 5.2% in May 2012. Headline inflation for March 2013 has been positively revised down by 31bp to 5.7% from 6.0%, mainly owing to a 242bp revision in fuel inflation. Despite the considerable moderation in WPI inflation, we believe that the Reserve Bank of India (RBI) is unlikely to ease policy rates in its upcoming policy meeting on June 17, 2013. We believe that the RBI is likely to be cautious since the sharp INR depreciation could potentially compound the trade deficit in the near term and also offset the positive impact of benign global commodity prices on inflation. Further, inflation at the retail level, measured by the Consumer Price Index (CPI), continues to remain elevated (9.3% in May 2013).

Source : Equity Bulls

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