India's Inflation slowed to 42-month low in May 2013 - Microsec

India's Inflation slowed to 42-month low in May 2013 to 4.70 percent YoY against 4.89 percent YoY in the previous month. May was the 2nd consecutive month when Inflation remained below the 5 percent YoY level, since December 2009. The moderation was led by a decline in the prices of Manufactured items even as those of Food Articles inched up. Reflecting the decline in commodity prices, Core Inflation also eased for the 9th straight month to 2.4 percent YoY.

During the month, the Wholesale Price Index (WPI) increased marginally to 171.6 from 171.5 in April 2013, registering a sequential rise of 0.06 percent as the prices of vegetables increased sharply.

More importantly, after final revision, the March WPI Inflation print was lowered to 5.65 percent YoY from 5.96 percent YoY reported earlier, mainly owing to 242 basis points down-ward revision in Fuel group Inflation. This is the first down-ward revision to WPI Inflation in the last 5-months. The index for March 2013 was revised to 170.1 against the earlier reported number of 170.6. Among the categories, Inflation rate for Primary Articles was revised down-ward to 7.36 percent YoY from 7.60 percent YoY reported earlier. Inflation rate for Fuel, Power, Light and Lubricants was revised down-ward to 7.76 percent YoY from 10.18 percent YoY. However, Inflation rate for Manufactured Products was revised upward to 4.28 percent YoY from 4.07 percent YoY.

Outlook: Continuing the underline trend of softening, India's WPI Inflation fell below 5.0 percent YoY for the 2nd consecutive month. Though the lower base effect supported the headline print, slowdown in price level was also witnessed across all broad categories. 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 raise expectation of rate cut by Reserve Bank of India (RBI) at its June 17, 2013 policy meeting. However, significant weakness in the rupee and the risks from the Current Account Deficit provide some discomfort against rate cut.

Source : Equity Bulls

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