Domestic retail fuel prices down by average 17% YoY in Sep - DBS Research Report

Sep CPI inflation and Aug industrial production (IP) are due today followed by the WPI inflation on Wed (14 Oct). Fading base effects are due to lift Sep CPI inflation to 4.4% YoY from Aug's 3.7%. On sequential basis, price pressures likely moderated slightly. Food inflation is likely to stabilise above 3% from 2.1% the month before, while WPI deflation is set to continue, slipping -4.5% YoY from Aug's -4.95%. Monsoon rains were 14% below long-term average between Jun and Sep.

But the fallout on broader food inflation has been yet far limited barring pulses and few commonly used vegetables. Pre-emptive short-term measures and an increase in imported supplies are expected to rein in any trickle-down impact in the weeks ahead. Global soft and energy commodity prices continued to trend south, with domestic retail fuel prices down by average 17% YoY in Sep. These should rein in inflationary expectations, with the government's fiscal consolidation assurances to mitigate demand-led pressures Industrial production is likely to extend its firm run, up 4% YoY in Aug from Jul's 4.2%.

On 12 month trailing basis, IP has stabilised around 2.8% from sub-2% levels late last year. Capital goods are expected to maintain its strong run, while consumer goods output treads water. On the supply-end, higher electricity generation (5.5% YoY) and mining output should compensate for any moderation in manufacturing growth. Overall higher government spending-led boost to infrastructure investments, lower financing costs on the back of more rate cuts and easing inflation are expected to underpin the cyclical upturn in industrial, activity.

Source : Equity Bulls

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