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Charts & Analysis

Charts: Inflation in Jan 2016 at 5.7%, Highest Since Sep 2014

In what is a strange negative macro situation, inflation’s bumped back up in January to 5.69%. This is the highest number since Sep 2014.

 

CPI Inflation

Components: Food, Housing and Medical Costs Up. Fuel and Transport Rise

Looking at each component the highest was food at 6.7% but we see rising trends in fuel, Housing and Medical costs too. The culprit? We haven’t let the lower fuel costs percolate down into the economy, because the government has levied high taxes on fuel through excise duty.

Component Inflation

Urban and Rural Inflation are both Up

Both Urban and Rural numbers are up this time, and the rural number is a high 6.48%. With lower wages in the rural areas, and high inflation, things won’t be good in the villages!

Urban Rural Inflation

Core Inflation Too Looks Up

If you removed food and fuel, you will get the “non-volatile” inflation in the economy. Sadly, that has been going up too!

Core Inflation 

We see that at 4.55% this is close to the highest in about a year. This doesn’t bode well, because this means inflation is being “sticky”.

Our View:

  • This data is a concern; RBI will not want to cut rates if inflation is coming back.
  • Remember RBI has a firm target to keep inflation below 6%
  • The rupee depreciation recently would have impacted imports and thus cause inflation will be up because of that as well.
  • We expect even more rupee depreciation in later months.
  • Core inflation is also going up.
  • This means the rate cuts will be slower than expected; and that RBI was right to have not cut this time.
  • Longer term Bond yields might firm up further on Monday if the fear is that rates won’t drop. 

Overall, lousy data and we are likely to need more attention on inflation.