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Charts & Analysis

March 2015 CPI Inflation Moves Down To 5.17%

After three months of rising headline inflation, we seem to have substantially moderated to a low 5.17% in March, on the consumer inflation front:

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Some of this as you can see, is the base effect, where the inflation index last year started rising again in March and went up to the 120 levels in September after which it has flattened completely. In fact, the March number at 120.1 is flat since September 2014 (when it was 120.1 as well). While much of the drop has been due to the fall in oil prices, it’s also relevant that food prices have been very stable since then.

In terms of inflation, food has the biggest weight, and saw about 6.2% inflation over the year. Costs on Housing and Transport have fallen substantially since last September, and some of it is the way data is collected (April is when some of the housing data will change, for government housing rentals). but costs of Household Items has gone up.

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The drop has been seen in both Urban and Rural segments:

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Our View: Great News! Watch out for some sudden RBI announcements in the next few days. With 5.17% and a rising ‘past year’ data, it would not be surprising to see inflation fall again, below 5%.

This gives RBI room to cut rates some more. We see another 0.25% cut, very easily, and it could happen just about now. Many banks have started to seize the opportunity to cut base rates, after Rajan’s warnings earlier this month. Either ways, it would be senseless to keep rates high when inflation is demonstrably lower, regardless of whatever other impacts seem possible (like bad weather, or increasing prices or such).

Market reactions: nowadays, all good news is being treated by the market as bad. So let’s not extrapolate and say the market will go up; in fact, the last time Rajan cut rates (in March), the market actually fell by the end of the day.

  • Ganesh Nayak says:

    RBI should cut rate by 50 points on May 15th.. that would be a gift to Modi Sarkar on one year completion.. ha ha

  • Ramki says:

    The recent (unseasonal)rains may in fact lower rural purchasing power and reduce gold demand.Given this v need at least 50 bp cut…the recent cuts in home loan rates r hardly worth a mention

  • kumar says:

    ha deepak, the market did fall in the last hour. so there. 🙂
    i don’t know how one can say that the transport cost has come down.
    i use three commute mechanisms : public transport [buses], taxis, and autos. none of them have reduced their prices, in fact they have gone up in the past two years, perhaps three or four times. the measly reduction in deisel/petrol prices have zero effect in bringing the price down.
    same goes for milk, i buy it at 40-50 Rs a litre…not sure where it has become cheaper, but it is definitely not cheaper where i buy.
    i see some variation in vegetable prices, not sure if that is seasonal or other reason, but pulses, my god, their prices have risen like crazy in the past two months.
    maybe this will be the case of government saying the inflation is -100, but at the retail level, we’ll never see changes.

    • Interesting point. Pulse inflation I think should already be visible. Lemme check.

    • Ramki says:

      Measly reduction in patrol/diesel prices?
      Petrol prices HV dropped from rs 75 pl + to 65- pl and diesel from 60+ pl to 50+ pl last 8 months…
      If u r using private transport for commute surely cost has reduced.veggies yes but sugar is cheaper and so is rice. Picture is one of lesser inflation than in 2013

      • kumar says:

        and how much did the cost of international basket of our imports drop by [per barrel]? to put it simply, no matter what the sector you choose, the middle man makes most of the profit, the benefit neither is for the creator/originator/farmer, nor is it for the end consumer.
        there seems to be a patten in all trades that makes me wonder how accurate any numbers that anyone puts out are.
        rice, it has been going up from Rs 20 a kilo [about 4 years ago] to about Rs 40 and above, depending on the quality. it has never gone below Rs 30 in the past three years.
        i am quoting price at the retail level, don’t buy wholesale, so those don’t matter to me.

  • Alan says:

    What are your predictions for inflation in June ? Do you think we’ll witness a rise ?