Monthly Inflation - December 2020 - ICICI Direct

- CPI Inflation declined sharply and was below market expectation at 4.59% in December compared to November print of 6.93% on the back of a sharp reversal in food prices coupled with favourable base effects

- The reading is now down significantly in the last two months with series high print of 7.61% in October indicating the inflation print peaked in October

- Food inflation in December is down sharply at 3.4% compared to 9.5% in November and 11.0% in October. Within food, almost all items witness decline in growth led by de-growth in vegetables (-10.4% in December vs. 15.5% growth in November). In food, only oil & fats, fruits and non-alcoholic beverages saw higher growth in December

- Within food, only two items viz. vegetables and cereals accounted for lion's share of the decline. Vegetables recorded negative inflation for the first time in 21 months, falling to -1.4% in December 2020 from 2% in November 2020 and 8% in December 2019

- While core inflation declined marginally, it remained range bound at 5.65% against 5.85% in November. Core inflation in December 2020 came in at 5.66%, moderately down from 5.84% in November 2020 but sharply up from 3.77% in December 2019. This shows that underlying price pressures have not softened much

- If the similar print persists next month, Q4FY21 is likely to average 5% YoY, which would be around 80 bps lower than MPC projections, bringing FY21 average to ~6.3% YoY. However, pressures from higher oil prices, demand normalising in post Covid-19 era and input cost pressures are key risk to be watched

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Inflation_Jan21.pdf

Source : Equity Bulls

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