Inflation falls, but food inflation could be the good news: Angel Broking

Views of Mr. Jaikishan J Parmar (Research Analyst, Angel Broking):

"CPI inflation for the month of March 2018 came in at 4.28%, slightly lower than the 4.44% inflation recorded in the previous month. Rural inflation for the month remained almost flat compared to February so the fall was entirely driven by urban inflation. The good news for CPI came from food inflation which fell to 2.81% in March from 3.26% in February. The sharp fall in food inflation ahead of the Kharif season should reassure the RBI and the government that food inflation should not be a major issue this year. Also, the inflation should remain within the RBI band of 4-5% during the current year with a downward bias.

We need to understand as to what has driven the food price inflation lower during the month of March. While vegetable inflation has tempered, pulses inflation continues to be negative. But the big difference has come from disinflation in sugar, which is largely an outcome of the sugar glut that India is currently facing the sharp fall in sugar prices. Also, the inflation in cereals has moderated to below 3% and that has also contributed to the fall in CPI inflation.

In the last credit policy in early April, the Monetary Policy Committed (MPC) had warned about the risks of food inflation and fuel inflation coming back. The food inflation will largely predicate on the monsoons this year while the fuel inflation threatens to be the one big worry. More so after the Saudi government has openly expressed its intent of seeing Brent Crude prices above the $80/bbl mark. In terms of the RBI stance on rates, it would wait for greater clarity on the Kharif output and the oil price trajectory."

Source : Equity Bulls

Keywords