Monthly Inflation

October 14, 2016

Inflation

Sharp fall in CPI

Items
CPI
CFPI
Core CPI
Fuel

Weights(%)
100.0
39.1
47.3
6.8

Jul-16
6.07
8.39
4.63
2.75

Aug-16
5.13
5.87
4.73
2.57

Sep-16
4.31
3.87
4.85
3.07

Jul-16
7.96
6.83
5.23
5.42
2.75
4.01

Aug-16
5.83
6.94
5.30
5.29
2.57
4.18

Sep-16
4.12
6.82
5.19
5.18
3.07
4.51

Components of CPI
Items
Food&bev.
Pan,tob& intox.
Cloth & Foot
Housing
Fuel & light
Misc.

Weights(%)
45.9
2.4
6.5
10.1
6.8
28.3

3.5
3.7
3.6

Wholesale price at 20 month high (WPI YoY %)

0
-4
-6

Jan-15
-0.9
Feb-15
-2.2
Mar-15 -2.3
Apr-15 -2.4
May-15
-2.2
Jun-15
-2.1
Jul-15 -4.0
Aug-15
-5.1
Sep-15-4.6
Oct-15 -3.7
Nov-15
-2.0
Dec-15
-1.1
Jan-16
-1.1
Feb-16
-0.9
Mar-16
-0.5
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16

(%)

2
-2

WPI September ....................................................................................................3.57%YoY

CPI falls sharply as food inflation retraces...

Key readings

Consumer Price Index fell sharply in September to 4.31%, beating

market expectations

CPI index has fallen from 6.07% in July and 5.13% in August 2016.
Continued fall in food inflation (particularly vegetables and pulses) led to
the deceleration

Food inflation cooled, clocking in 4.1% YoY versus prior 5.8% YoY.
Barring cereals and sugar, reduction in price pressures in this segment
remained broad based

Going ahead, we expect CPI inflation to remain benign on continued

government efforts, normal monsoon and expected robust kharif
production

The wholesale price index (WPI) based inflation also declined to a threemonth low of 3.57% in September from 3.74% in the previous month as
food inflation fell sharply by 2.48%

0.8
1.2
1.6

CPI September.....................................................................................................4.31% YoY

Components of WPI (YoY %)

Particulars
WPI
Primary Articles
Fuel & Power
Manuf.Goods

Weights Jun-16
100.0
1.62
20.1
5.50
14.9
-3.62
65.0
1.17

Jul-16 Aug-16 Sep-16

3.55
3.74
3.57
9.38
7.47
4.76
-1.00
1.62
5.58
1.82
2.42
2.48

CPI: Sharp fall in vegetables and pulses prices pull back headline inflation

Food inflation decelerated sharply to 4.1% YoY against previous reading

of 5.8% YoY. Barring cereals and sugar, reduction in price pressures in
this segment remained broad based

Vegetables prices contracted for the first time in over a year at (-) 7.2%
YoY as against 1.0% YoY earlier. Pulses inflation fell below the 20% YoY
threshold for the first time in 16 months. Government measures (such as
increased MSP, creation of buffer stock and increased imports) to
address structural issues in pulses have led to relief in price pressures in
the segment. Normal monsoon and upbeat kharif sowing are expected
to lead to additional price easing in pulses.

However, sugar inflation continuing to move higher. Cereals inflation

with almost 10% weight in CPI also increased to its highest levels almost
two years at 4.2% YoY versus prior of 4.1% YoY. Fuel inflation also
edged higher to 3.1% YoY from 2.5% YoY in August. The potential hike
in retail fuel prices due to rise in global global crude opil prices could be
risk for inflation going forward

MoM inflation (%)

Particulars
CPI
Food & Bev
Fuel & light
Housing
Clothing
Misc
WPI
Primary Arti.
Fuel & Power
Manuf.Goods

Weights

Jun-16

100.0
45.9
6.8
10.1
6.5
28.3
100.0
20.1
14.9
65.0

1.17
2.09
0.49
-0.40
0.46
0.66
-0.74
-2.65
-1.12
0.33

Jul-16 Aug-16 Sep-16

0.77
1.17
0.08
0.72
0.53
0.33
0.69
0.12
2.38
0.59

0.00
-0.36
0.16
0.71
0.38
0.16
1.43
2.36
1.74
0.91

-0.23
-0.94
0.40
0.47
0.45
0.57
1.35
2.26
3.14
0.39

WPI: Continues to rise from low base

In line with CPI, the Wholesale Price Index (WPI) inflation for September
dipped to levels of 3.57% versus 3.74% in August. However, WPI
inflation was sharply raised to 3.72% from provisional estimate of 3.55%
for the month of July

The WPI food inflation came down to 5.75%, from 8.23% over this
period. Vegetables, which fuelled inflation as recently as July, saw
decline in prices by almost 11%

Amid almost all-round fall in food inflation, fruits and milk acted
somewhat as outliers. Inflation in fruits saw an uptick to 14.10%, against
13.91%, while that in milk touched 3.71% from 3.40%. Even as food
inflation came down, inflation in fuels and manufactured products rose

Research Analyst
Sachin Jain
sachin.ja@icicisecurities.com
Vinav Kadel
vinav.kadel@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Higher karif output, government measures make inflation outlook sanguine

The production in the current monsoon session is expected

to be better with sowing growth in pulses area up by 30%.

Government has already announced APMC reforms and

farmers now can directly sell their produce in the market.
Other measures like cracking down on hoarders and
efficient vigilance will improve supply side disruptions

As per the latest release by the Ministry of Agriculture; total cumulative

sowing as of September 9, 2016 in the current Kharif season stood at 105.4
million hectare (MH), 4.2% YoY. Cumulative sowing in the corresponding
period last year stood at 101.2 MH. Sowing is robust in the case of pulses at
14.4 MH, up 30%; flat in the case of rice at 38 MH and muted in the case of
cotton at 10.2 MH, down 11% YoY. Cumulative rainfall in the current
monsoon season 2016 as of September 11 was at 95% of LPA (5%
deficient). It is normal in the case of central as well as northern India while
deficient in the Southern and the Eastern part of the country
The Reserve Bank of India will monitor macroeconomic and financial
developments for any further scope for policy action. It expects inflation to
reduce to 5% by March 2017. Although the central bank has enough leeway
time wise, firming international commodity prices, especially crude oil and
implementation of Seventh Pay Commission are going to put upward
pressure on inflation in coming months. Consequently, we expect a 25-50
bps rate cut in the remaining part of the financial year FY17

Exhibit 1: CPI Breakdown by components (YoY %)

9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

8.39
6.07
5.13

5.87
4.31

4.63 4.73 4.85

3.87

CPI

2.75 2.57 3.07

CFPI
Jul-16

Core CPI
Aug-16

Fuel

Sep-16

Source: CSO, ICICIdirect.com Research

5.18
5.29

5.30

5.19

8.19

7.67
4.93
5.19

Housing

Clothing and footwear

Aug-16

Personal care and effects

Sep-16

Education

Recreation and
amusement

Transport and
communication

1.25

4.25

3.97

4.67
4.52
Health

2.70

4.32
4.60

9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

Household goods and

services

The transport index declined due to the positive base effect

Exhibit 2: Core CPI Breakdown by components (YoY %)

Source: CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

RBIs inflation projections

CPI inflation is expected to average at 6% in 2016-17 and moderate to
around 5% in Q4 of 2016-17.
Exhibit 3: CPI - Breakdown by components (YoY %)
Weights
45.9
9.67
3.61
6.61
3.56
2.89
6.04
2.38
1.36
2.5
1.26
5.55
2.4
7.9
10.1
6.8
28.3
3.8
5.9
8.6
1.7
4.5
3.9

Food and beverages

Cereals and products
Meat and fish
Milk and products
Oils and fats
Fruits
Vegetables
Pulses and products
Sugar and confectionery
Spices
Non-alcoholic beverages
Prepared meals
Pan, tobacco and intoxicants
Clothing and footwear
Housing
Fuel and light
Miscellaneous
Household goods and services
Health
Transport & comm
Recreation and amusement
Education
Personal care and effects

Apr-16
5.52
2.18
7.19
3.66
5.33
-0.64
0.70
38.30
0.61
9.87
4.24
6.50
8.30
5.52
5.33
4.59
4.38
4.88
5.25
2.39
4.79
5.68
4.77

May-16
5.27
2.43
7.74
3.33
4.85
-1.10
0.54
34.15
3.92
9.58
4.15
6.23
8.51
5.50
5.31
3.38
4.01
4.95
5.31
0.91
4.68
5.66
5.68

Month
Jun-16
6.29
2.51
8.23
3.40
5.13
1.74
4.98
34.21
11.18
9.80
4.30
5.89
8.04
5.56
5.37
3.03
4.26
4.85
5.21
1.82
4.49
5.54
5.73

Jul-16
7.96
3.88
6.57
4.13
4.96
3.53
14.06
27.53
21.91
9.04
4.25
5.63
6.83
5.23
5.42
2.75
4.01
4.62
4.54
1.06
4.44
5.14
7.30

Aug-16
5.83
4.11
5.85
4.36
5.03
4.31
1.02
21.94
24.89
8.83
4.32
5.60
6.94
5.30
5.29
2.57
4.18
4.60
4.52
1.25
4.25
5.19
8.19

Source: CSO,ICICIdirect.com Research

Exhibit 4: WPI - Breakdown by components (YoY %)

WPI was in the positive territory led by high food inflation,

which drove headline WPI higher

WPI
Primary Articles
Fuel & Power
Manufactured Goods

Weights
100.0
20.12
14.91
64.97

Aug-15
-5.06
-4.21
-16.21
-1.99

Month
Jul-16
3.55
9.38
-1.00
1.82

Aug-16
3.74
7.47
1.62
2.42

Average
FY16
-2.49
0.31
-11.67
-1.10

Average
FY15
2.00
2.98
-0.95
2.42

Source: CSO,ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

Exhibit 5: Primary articles - Breakdown by components (YoY %)

Steps taken by government to check food price hike

1.

2.

3.

4.

The CCEA has approved the stock holding limit

order on onion for another year. This will enable
state governments to take effective de-hoarding
measures under Essential Commodities Act (ECA),
1955
Government officials had inspected the godowns
of 331 traders across Nashik district on August 22,
2015 and found that around 1.4 lakh quintals of
onions had been hoarded. As a result, traders have
started clearing their stock, leading to a rise in
supply and, thus, a drop in prices. Traders also
imported 10,000 tonnes, hence increasing supply
The Union Cabinet has approved the setting up of
an online National Agriculture Market (NAM). The
move is expected to provide choice to farmers to
sell the farm produce both in physical mandis or
online platforms. NAM would integrate all existing
Agricultural Produce Market Committees (APMCs)
across the country through an online platform
The government has said it will have all Food
Corporation of India (FCI) depots online by March
2016. FCI has invited a tender to hire a private
agency to implement this project A software to
accomplish this task has already been developed
and tested in one or two depots in Andhra
Pradesh. This will be scaled up and rolled out
across the country

Primary Articles
Food Articles

Weights
20.1
14.3

Food Grains & Cerelas

Aug-15
-4.21
-1.02

Month
Jul-16
9.38
11.82

Aug-16
7.47
8.23

Average
FY16
0.31
3.42

Average
FY15
2.98
6.08
3.99

4.1

4.85

13.57

13.46

7.66

Rice

1.8

-3.89

4.08

4.76

-1.66

6.70

Wheat

1.1

2.09

6.90

7.27

3.67

-0.29

0.7

36.49

35.76

34.55

39.47

5.88

Fruits & Vegetables

Pulses

3.8

-11.77

22.33

6.99

-1.31

5.35

Milk

3.2

2.08

3.24

3.40

3.28

9.97

Eggs, Meat & Fish

2.4

3.30

7.49

8.75

2.01

2.37

0.6
4.3

8.78
-0.46

5.27
9.49

7.20
8.44

14.64
3.51

21.68
-0.55

Fibres

0.9

-9.09

25.90

24.55

-3.78

-10.20

Oil Seed

1.8

-2.20

5.29

6.74

2.88

3.10

1.4
1.5

8.71
-34.35

6.00
-14.28

3.64
-3.44

8.44
-29.92

0.98
-10.96

Month
Jul-16
-1.00

Aug-16
1.62

Average
FY16
-11.67

Average
FY15
-0.95

Spices
Non-Food Articles

Other Non Food Articles

Minerals

Source: CSO, ICICIdirect.com Research

Exhibit 6: Fuel group - Breakdown by components (YoY %)

Fuel Group

Weights
14.9

Aug-15
-16.21

Coal

2.1

0.05

0.68

0.68

0.05

-0.51

Mineral Oils
Controlled Fuel :

9.4

-24.90

-0.82

3.43

-18.30

-2.79

LPG

0.9

-5.32

-1.35

-1.85

-4.11

0.65

Kerosene

0.7

-9.03

1.82

3.66

-6.27

-6.80

4.7

-25.37

6.57

12.15

-16.28

2.49

Petrol

1.1

-13.82

-10.30

-8.65

-10.25

-5.44

Aviation Turbine fuel

0.3

-37.37

-8.93

-2.73

-34.22

-12.05

High Speed Diesel

Market determined fuel :

Light Diesel Oil

0.1

-45.09

-15.31

-13.96

-34.36

-13.38

Bitumen

0.2

-26.46

-26.46

-24.27

-28.82

-4.95

Furnace Oil

0.5

-44.66

-18.28

-9.30

-41.05

-14.81

Lubricants

0.2

5.15

0.00

0.00

2.11

4.73

3.5

5.85

-2.77

-2.77

3.74

5.88

Electricity

Source: CSO, ICICIdirect.com Research

Exhibit 7: Manufactured goods - Breakdown by components (YoY %)

Average

Average

Weights
65.0
10.0
55.0
1.8
7.3
0.6
2.0
0.8
12.0
2.6

Aug-15
-1.99
-2.11
-0.57
2.13
-2.64
4.36
3.00
-0.75
-1.88
2.75

Jul-16
1.82
10.19
-0.53
7.03
0.71
-0.51
1.89
0.83
-0.20
1.82

Aug-16
2.42
11.35
-0.22
7.77
1.28
1.86
1.55
0.48
0.00
2.05

FY16
-1.10
0.77
-1.49
2.86
-1.72
4.21
2.57
-0.13
-1.47
2.60

FY15
2.42
2.41
2.44
7.93
2.62
4.86
5.40
1.33
2.64
3.98

10.7
8.9
5.2

-7.50
0.30
1.10

-2.30
0.15
1.31

-1.49
0.15
1.60

-6.63
0.25
1.33

0.62
2.28
1.28

Month

Lower global commodity prices contained core inflation

Manufactured Goods
Food Products
Manufacturing Ex Food
Beverages & Tobacco
Textiles
Wood & Wood Products
Paper & Paper Products
Leather & Leather Products
Chemicals & Chemical Products
Non-Metallic Mineral Products
Basic Metals
Machinery & Machine Tools
Transport, Equipment & Parts

Source: CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 8: WPI continue to trend upwards on lower base

10

24
18
12

-5

-6

-10

-12

-15
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16

-18

WPI (LHS)

Food Articles

Manufactured Goods(LHS)

Fuel Group

Source: CSO, ICICIdirect.com Research

Exhibit 10: Core WPI continues in negative zone

50
40
35

48.5

30

$/bbl.

45

35 7
Aug-16

Jun-16

Apr-16

Feb-16

Dec-15

Aug-15

Oct-15

25

Crude Oil prices (Indian basket)

Source: ppac.org.in, ICICIdirect.com Research

5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0

Dec-14
1.43
Jan-15
0.90
Feb-15
0.07
Mar-15
-0.38
Apr-15
-0.41
May-15 -0.57
-0.95
Jun-15
Jul-15 -1.39
Aug-15 -1.92
Sep-15 -1.93
Oct-15
-2.10
Nov-15 -1.98
Dec-15-2.09
Jan-16 -2.08
Feb-16 -1.51
Mar-16
-0.99
Apr-16
-0.53
May-16
-0.22
-0.24
Jun-16
0.00
Jul-16
0.54
Aug-16

Exhibit 9: Crude oil prices remain range bound

Source: CSO, ICICIdirect.com Research

Exhibit 11: Fuel group and mineral inflation have risen sharply
10.0

100.0

5.0

80.0

0.0

Jun-16

-25.0
-30.0

Aug-16

Apr-16

Feb-16

Dec-15

Oct-15

Aug-15

Apr-15

Jun-15

Feb-15

Dec-14

-20.0

Oct-14

-15.0

40.0

$/bl

60.0

-10.0
Aug-14

-5.0

20.0
0.0

Fuel group

Mineral Oils

Brent Crude (RHS)

Source: Bloomberg, CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 6

ANALYST CERTIFICATION
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months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the
publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.
It is confirmed that Sachin Jain, CA Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

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