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Charts & Analysis

Consumer Price Inflation for Aug 2014 at 7.8%, Too High For a Rate Cut

Consumer Price Inflation for August 2014 comes in at a nice 7.80%.

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This is lower than last month, but still quite high and the "slope" of the inflation index curve shows it going up at a pace nearly as rapid as last year.

As usual, the culprit is food:

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Nearly everything else (other than "Personal Care") has fallen over the last few months. However, the "Core" CPI has fallen dramatically:

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Will RBI take this into consideration? It is unlikely they care only about Core CPI because Food inflation does impact inflation expectations. But it is heartening to see this data point, because it means inflation can be controlled by cutting food prices.

Our View: RBI does a status quo on Sep 30 on interest rates. Inflation at 7.8% is still too high for RBI to cut rates. Only if CPI sustains below 7.5% will we see the RBI trying to cut rates. Remember, RBI expected inflation to fall into November and then rise.

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