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Charts & Analysis

CPI Inflation at a 2015 Low of 4.87%

Inflation in April 2015, as measured by the Consumer Price Index, fell to a low of 4.87%, the lowest in 2015:

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CPI has components with different weights, the majority of which is “Food”. That has climbed down substantially. Inflation seems benign in most other cases, including housing.

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Rural Inflation, too, is falling. This is probably a bad sign now, given that rural incomes are declining too. Rural inflation at 4.36% is the lowest it has ever been. But for the question of inflation, this is good:

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The impact may be lower wage growth and spending power in rural areas. Not exciting for say an FMCG or Two Wheeler sector, and combined with weird rain patterns, this could actually end up being a thorn later. However, low inflation has good impact if it sustains, and will help long term growth.

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Core inflation, as measured by the index after removing fuel and food, is also under control. It seems to have found a bottom around 4%.

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Our View: India will continue to see subdued inflation till September because of the base effect. Even Month-on-Month moves, suitably annualized, is at 5.3% (core), and 4.99% (full index). Which means there doesn’t seem to be a rapid rise in prices in any particular area.

Inflation is big in pulses (12%) – which, as we’ve noted earlier, saw a 10% drop in planted area in the last harvest.  Other than that, there’s nothing in double digit inflation, and there’s Sugar which has fallen by 6%.

This should prompt a rate cut, by RBI, and without waiting for the next policy meeting on Jun 02. But strange things are happening in the US Dollar-Rupee equation that might weigh on RBI’s decision – however, a pure data-based approach will mean a 0.25% cut immediately. Bank have started to pass on the lower rates, too.