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WPI Inflation, May 2013

WPI Inflation, May 2013

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Published by Angel Broking
17th June, 2013
17th June, 2013

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Categories:Types, Business/Law
Published by: Angel Broking on Jun 17, 2013
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06/17/2013

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Please refer to important disclosures at the end of this report
 1
Key highlights
 
The Wholesale Price Index (WPI) based inflation moderated for the fourth straightmonth in May 2013 to 4.70% as compared to 4.89% in the previous month and7.55% in May 2012.
 
Owing to benign commodity prices as well as a break-down of pricing power inmanufacturing, headline WPI inflation is now within the 5% comfort zone for thesecond consecutive month, since its spike post Nov 2009.
 
The moderation is led by core inflation which eased for the ninth straight month to2.4% as compared to 2.7% in the previous month and 5.2% in May 2012.
 
Headline inflation for March 2013 has been positively revised down by 31bp to5.7% from 6.0%, mainly owing to a 242bp revision in fuel inflation.
 
Despite the considerable moderation in WPI inflation, we believe that the ReserveBank of India (RBI) is unlikely to ease policy rates in its upcoming policy meetingon June 17, 2013.
 
 We believe that the RBI is likely to be cautious since the sharp INR depreciationcould potentially compound the trade deficit in the near term and also offset thepositive impact of benign global commodity prices on inflation. Further, inflationat the retail level, measured by the Consumer Price Index (CPI), continues toremain elevated (9.3% in May 2013).
Trends in Inflation for May 2013
Primary articles
weightage 20.1%
Inflation in primary articles (on a moderating trend since the past three months) inchedhigher to 6.7% in May 2013 as compared to 5.8% in the previous month. This can beattributed to higher inflation in primary food articles, even as non-food articles andminerals moderated sequentially. Food inflation is mainly led by the 4.9% yoy (9.0%mom) rise in vegetables inflation against a 9.0% decline in the previous month. Incase of food articles, the marginal rise in cereal inflation to 16.0% from 15.6% in April2013 was more than offset by moderation in pulses inflation to 5.9% from 10.3% inthe previous month.
Fuel and power 
weightage 14.9%
Inflation in fuel and power moderated to 7.3% during the month as compared to 8.8%in April 2013 and 11.5% in May 2012. The electricity index has gone up in line withelectricity tariff revisions by some states, pushing up inflation in this category to 27.9%as against 13.2% in April 2013. It contributed 69bp to the overall headline inflation of4.70% as compared to a contribution of 33bp in the previous eight months. Theincrease in the electricity index was offset by the decline in coal index as well asmoderation in mineral oils. Going ahead, the revision in coal price index is likely tokeep the fuel index from inching downwards.
Bhupali Gursale
022-3935 7800 Ext: 6820bhupali.gursale@angelbroking.com
WPI Inflation Update
May
2013
Inflation continues to tread positively 
 WPI Inflation Update | Economy 
June 14, 2013
 
 `` WPI Inflation Update
May 2013
June 14, 2013
 2
Exhibit 1:
 
Trends in WPI Inflation (%, yoy)
Weightage (%) May-13 Apr-13 Mar-13 May-12Headline Inflation 100 4.7 4.9 5.7 7.5
Primary Articles 20.12 6.7 5.8 7.4 10.3Fuel and Power 14.91 7.3 8.8 7.8 11.5Manufactured Products 64.97 3.1 3.4 4.3 5.2
 Source: Office of Economic Adviser, Angel Research
Exhibit 2:
 
Manufactured products inflation trending down
 Source: Office of Economic Adviser, Angel Research
Exhibit 3:
 
Spike in food articles inflation during May 2013
 Source: Office of Economic Adviser, Angel Research
6.77.33.10.03.06.09.012.015.0
   M  a  y -   1   2   J  u  n -   1   2   J  u   l -   1   2   A  u  g -   1   2   S  e  p -   1   2   O  c   t -   1   2   N  o  v -   1   2   D  e  c -   1   2   J  a  n -   1   3   F  e   b -   1   3   M  a  r -   1   3   A  p  r -   1   3   M  a  y -   1   3
(%)Primary Articles Fuel and Power Manufactured Products-3.00.03.06.09.012.015.0Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13(%)Primary Articles (wt: 20.1%) Food Articles (wt: 14.3%)Non-Food Articles (wt: 4.3%) Minerals (wt: 1.5%)
 
 `` WPI Inflation Update
May 2013
June 14, 2013
 3
Manufactured products
weightage 65.0%
Inflation in manufactured products decelerated for the eighth straight month to3.1% in May 2013 as compared to 3.4% in April 2013 and 5.2% in thecorresponding period of the previous year. Core inflation, ie the non-foodmanufacturing component of inflation, softened to a 41-month-low to 2.4% ascompared to 5.2% in May 2012. The deceleration in core inflation can be attributedto decline in commodity prices on a yoy basis as well as continued weakness inpricing power.
Exhibit 4:
 
Moderation in core inflation within 3%-level
 Source: Office of Economic Adviser, Angel Research
Policy Outlook 
Despite the considerable moderation in WPI inflation, we believe that the RBI isunlikely to ease policy rates in its policy meeting on June 17, 2013. We believethat the RBI is likely to be cautious since the sharp INR depreciation couldpotentially compound the trade deficit in the near term and also offset the positiveimpact of benign global commodity prices on inflation. In fact we believe that INR depreciation and its stabilization at a higher level could stoke imported inflationand the RBI is likely to guard against those inflationary pressures.Further, despite the substantial moderation in WPI inflation, inflation at the retaillevel, as measured by the CPI, continues to remain elevated. CPI inflation came inslightly lower at 9.3% in May 2013 as compared to 9.4% in April 2013 owing tofood inflation remaining above double-digits.
2002202402602803003203403603804000.01.02.03.04.05.06.07.08.09.0
   J  a  n -   1   1   M  a  r -   1   1   M  a  y -   1   1   J  u   l -   1   1   S  e  p -   1   1   N  o  v -   1   1   J  a  n -   1   2   M  a  r -   1   2   M  a  y -   1   2   J  u   l -   1   2   S  e  p -   1   2   N  o  v -   1   2   J  a  n -   1   3   M  a  r -   1   3   M  a  y -   1   3
(Index)(%)Core Inflation CRB commodity index (RHS)

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