CPI inflation at a high of 11.2% in November 2013 - Angel Broking

For the third straight month, the combined (rural + urban) CPI inflation for November 2013 paced to 11.2%, the highest level in the new series since January 2012, owing to elevated food inflation. The pick-up in inflation is also driven by rural inflation edging considerably upwards to 11.7% in November 2013 from 10.2% in the previous month due to acceleration in food, fuel and services inflation.

Food articles, accounting for an almost 50% weightage in the index, reported inflation at 14.5% as compared to 12.4% in October 2013. This uptick continued to be driven by higher vegetables (61.6%) and fruits (15.0%) inflation along with sustained cereal (12.1%) inflation. We believe that food inflation is likely to see some respite going ahead as vegetable and fruit prices have eased in December 2013 and this is expected to support the headline CPI inflation to trend lower.

Fuel inflation continued to remain at 7.0%. However, even as urban fuel inflation eased considerably to 5.9% from 7.3% in the previous month, rural fuel inflation edged higher to 7.7% from 6.9% in October 2013. Core CPI inflation continued to remain sticky at 8.0% levels for the fifth consecutive month in November 2013. Services inflation, constituted by medical, education, transport, recreation etc has continued to remain at 6.9% as easing of inflation in urban services was offset by a rise in rural services inflation.

Outlook: We expect the Reserve Bank of India (RBI) to continue maintaining its cautious guard on inflationary pressures and elevated inflation expectations. Although the inching upwards of CPI inflation is largely driven by food inflation, core CPI inflation has remained sticky at uncomfortable levels. We expect the RBI to hike its policy rate by 25bp in the upcoming policy review on December 18.

Source : Equity Bulls

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