Food inflation remains high; core inflation falls - Cholamandalam Securities

For the month of June, WPI inflation was reported at 4.86% (market expectations of 5%) vis-à-vis May numbers of 4.7%. The index reading was reported at 172.7 (provisional) for June 2013 as against 164.7 for June 2012 and 171.6 (provisional) for May 2013. May WPI inflation figures were revised downwards to 4.7% from 4.8%; on the back of downward revisions across major components – primary articles, fuel and manufactured products. The consumer price index (combined) was reported at 9.87%YoY in June 2013 as against 9.31% in May 2013.

- Food inflation remained stubborn at 9.74%YoY due to higher price of poultry chicken (17%MoM), fruits & vegetables (8%MoM), egg (6%MoM), mazur and rice (3%MoM) and maize (4%MoM). Downtick was seen in the price of jawar, gram and urad (2%MoM) and ragi, condiments and spices(1%MoM)

- Fuel and Power inflation rose to 7.12%YoY on higher price of electricity and the administered price of diesel rising. Uptick was seen in the prices light diesel oil and naphtha (3%MoM), non-coking coal, furnace oil and petrol (2%MoM) and high speed diesel and bitumen (1%MoM).

- Core inflation (manufactured product - ex food) was reported at 2%YoY. Downticks were noted in heavy weighted items - basic metals alloys & metal products (0.5% MoM), while upticks were witnessed in machinery and machine tools (0.2%MoM), transport equipment and parts (0.5%MoM) and rubber and plastics products (1.9%MoM). Other components were largely seen flat.

Outlook: WPI inflation has so far significantly moderated, while CPI inflation continues to remain at elevated levels with bulk of increase coming from higher vegetable prices. However, it is expected to fall to acceptable levels in coming months, given good monsoon this year and sowing acreages for oil seeds and pulses going up by 25 - 30%, which can normalise food prices. This apart, weakening rupee along with rising crude prices due to uprising in Egypt can exert pressure on inflation due to pass through effects of rising import costs. So, till such time rupee stabilizes, RBI is unlikely to cut rates though growth is anemic.

Source : Equity Bulls

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