You are on page 1of 7

Monthly Inflation

June 15, 2016

Inflation

CPI May 2016 at 5.76%


Items
CPI
CFPI
Core CPI
Fuel

Weights(%)
100.0
39.1
47.3
6.8

Mar-16
4.83
5.19
4.77
3.38

Apr-16
5.47
6.40
4.89
3.03

May-16
5.76
7.55
4.68
2.94

Mar-16
5.27
8.51
5.50
5.31
3.38
4.01

Apr-16
6.29
8.04
5.56
5.37
3.03
4.26

May-16
7.20
7.82
5.37
5.35
2.94
3.96

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

Wholesale price declines (WPI YoY %)


0.3
0.8

-2
-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
-3.7
Oct-15
-2.0
Nov-15
-1.1
Dec-15
-1.1
Jan-16
-0.9
Feb-16
-0.5
Mar-16
Apr-16
May-16

(%)

Components of WPI (YoY %)


Particulars
WPI
Primary Articles
Fuel & Power
Manuf.Goods

Weights Feb-16 Mar-16


100.0
-0.85
-0.45
20.1
2.03
2.97
14.9
-7.06
-8.30
65.0
-0.52
0.13

CPI May ...............................................................................................................5.76% YoY


WPI May ..............................................................................................................0.79%YoY

Inflation surgesmonsoon holds key...


Key readings

CPI May 2016 moved up to 5.76% from 5.47% in April (Bloomberg


survey: CPI: 5.6%). CPI April was revised to 5.47% from 5.39%

The increase was driven by food prices. Consumer food price index
soared to 7.5% from 6.4% in April 2016. Price rise in vegetables, eggs,
pulses, sugar and meat & fish were major contributors to food inflation

Pulses and products with 31.57% YoY growth in prices, continue to be


the highest contributor to the headline CPI index

Core inflation, however, pulled back to 4.5% from 4.7% on account of a


mild increase in the transport & communication index

WPI May 2016 inflated to 0.79% and maintained the positive territory for
the second consecutive month. Core WPI at -0.43% signifies a slack in
demand for input commodities

CPI: High food inflation drives headline CPI upwards

CPI jumped to 5.76%, highest ever since August 2014. Food inflation at
7.55% continued to put pressure on headline CPI. Vegetable inflation
rose to 10.8% YoY in May from 5% in April. On an MoM basis, vegetable
inflation grew at 7.4% in May vs. 3.9% in April. Egg increased 9.1% YoY
compared to 6.6% in April. Fruits witnessed inflation of 2.64% whereas
sugar grew 14% YoY. Water shortages in key sugar producing states like
Maharashtra and Karnataka led to shortages in production, which led to
a steep increase in sugar prices. Barring oils, fats and non-alcoholic
beverages, food inflation was mainly broad based. Pulses prices grew on
a month on month basis for a second consecutive month and remained
a cause of concern as it is the highest contributor to the headline CPI

Core inflation edged down to 4.5% in May. The major contributor was
transport and communication inflation, which grew only 0.63% YoY in
May compared to 1.82% in April. Clothing inflation cooled off to 5.37%
YoY from 5.56% in April while services inflation also fell to 3.96% YoY in
May from 4.26% in April

Apr-16 May-16
0.34
0.79
2.34
4.55
-4.83
-6.14
0.71
0.91

MoM inflation (%)


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

Weights

Feb-16 Mar-16

100.0
45.9
6.8
10.1
6.5
28.3
100.0
20.1
14.9
65.0

-0.24
-1.07
0.33
0.81
0.54
0.51
-0.74
-2.65
-1.12
0.33

0.00
0.00
-0.65
0.40
0.23
0.17
0.69
0.12
2.38
0.59

Apr-16 May-16
1.03
1.46
0.00
0.56
0.38
0.59
0.97
1.30
1.74
0.58

1.02
1.67
0.33
0.32
0.31
0.58
1.36
2.41
2.79
0.45

WPI: Expands for second consecutive month

WPI May 2016 came in at 0.79%, higher than the previous month at 0.34%. The major driver was primary articles, which grew 4.6% YoY in
May compared to 2.3% YoY in April. In primary articles category, food
articles increased the highest by 7.9% YoY in May from 4.2% in April

Core inflation was at -0.43% signalling a weak demand scenario. The


global commodity index (CRB index) was down 17% YoY as on May 31,
2016, supporting a decline in raw material prices across sectors in the
past year, thus leading to disinflationary pressures. The pass-on to
retailers has still not been done fully

Sequentially, WPI saw an increase of 1.36%. The food articles index


increased 2.8% MoM while minerals index was also up 3.7% MoM

Research Analyst
Sachin Jain
sachin.ja@icicisecurities.com
Isha Bansal
isha.bansal@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Progress of monsoon to decide fate of inflation


The Krishi Kalyan Cess of 0.5% to build rural infrastructure
in India, which kicked in from June 1 on all taxable
services, is expected to add to inflationary pressure

The central government earlier this month has announced a


moderate 4.3% hike in minimum support price (MSP) for
paddy, the main rain-fed Kharif crop, to | 1470 per quintal,
to keep food inflation within reasonable limits

The sharp increase in inflation, led by food inflation was above market
expectations. The hike in vegetable prices seems to be seasonal and is
expected to subside in coming months. Additionally, the positive base effect,
which is to kick in from June, will pull vegetable inflation further down. The
progress and spatial distribution of monsoon will be critical in deciding the
future inflation figures.
The Reserve Bank of India will monitor macroeconomic and financial
developments for any further scope for policy action. It expects inflation to
reduce down 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 bps
rate cut in this fiscal, provided inflation numbers roll out as per expectations.
Exhibit 1: CPI Breakdown by components (YoY %)
7.55

8.0
7.0
6.0

5.0

4.83

5.47 5.76

6.40
5.19

4.77 4.89 4.68


3.38

4.0

3.03 2.94

3.0
2.0

Out of the headline number of 5.8%, around 59% or 3.4%

1.0

came from food index. Services inflation was the second

0.0

biggest contributor at 1.1%

CPI

CFPI

Core CPI

Mar-16

Apr-16

Fuel

May-16

Source: CSO, ICICIdirect.com Research

5.35
5.37

5.56

5.37

5.73

6.14

5.85
5.54

4.49

4.39

Housing

Clothing and footwear

Apr-16

Personal care and effects

May-16

Education

Recreation and
amusement

Transport and
communication

1.82

5.10
5.21
Health

0.63

4.83
4.85

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 6% in 2016-17 and moderate to around
5% in Q4 of 2016-17. CPI came in at 5.8% in May 2016, more than
expectation and against the RBIs target. CPI came in at 5.8% in May, mainly
led by food inflation that is expected to be a seasonal factor and is likely to
subside in the coming months.
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

Jan-16
6.66
2.19
8.23
4.00
6.36
-0.24
6.39
43.32
-1.72
10.56
4.60
6.79
9.03
5.71
5.20
5.32
3.95
5.17
5.63
1.55
4.90
5.51
3.43

Feb-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

Month
Mar-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

Apr-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

May-16
7.20
2.59
8.67
3.53
4.83
2.64
10.77
31.57
13.96
9.72
4.11
5.86
7.82
5.37
5.35
2.94
3.96
4.83
5.10
0.63
4.39
5.85
6.14

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

May-15
-2.20
-1.05
-9.43
-0.52

Month
Apr-16
0.34
2.34
-4.83
0.71

May-16
0.79
4.55
-6.14
0.91

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

May-15
-1.05
2.74

Month
Apr-16
2.34
4.23

May-16
4.55
7.88

Average
FY16
0.31
3.42

Average
FY15
2.98
6.08
3.99

4.1

4.12

9.19

11.00

7.66

Rice

1.8

-1.43

0.47

2.22

-1.66

6.70

Wheat

1.1

2.60

2.22

3.85

3.67

-0.29

0.7

23.10

36.36

35.56

39.47

5.88

Fruits & Vegetables

Pulses

3.8

1.40

-0.53

7.66

-1.31

5.35

Milk

3.2

6.89

2.83

2.36

3.28

9.97

Eggs, Meat & Fish

2.4

-4.04

3.34

9.75

2.01

2.37

0.6
4.3

13.77
-0.96

12.09
7.12

12.96
4.48

14.64
3.51

21.68
-0.55

0.9

-12.08

5.27

5.60

-3.78

-10.20

1.8

-0.64

5.68

2.73

2.88

3.10

1.4
1.5

7.03
-26.50

6.40
-27.24

4.78
-26.78

8.44
-29.92

0.98
-10.96

Spices
Non-Food Articles
Fibres
Oil Seed
Other Non Food Articles
Minerals

Source: CSO, ICICIdirect.com Research

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


Weights
14.9

May-15
-9.43

Month
Apr-16
-4.83

May-16
-6.14

Average
FY16
-11.67

Average
FY15
-0.95

Coal

2.1

0.05

0.00

0.00

0.05

-0.51

Mineral Oils
Controlled Fuel :

9.4

-14.18

-7.87

-9.63

-18.30

-2.79

LPG

0.9

-4.95

-1.84

-1.84

-4.11

0.65

Kerosene

0.7

-8.86

-0.27

1.51

-6.27

-6.80

4.7

-9.77

-3.94

-5.01

-16.28

2.49

Fuel Group

High Speed Diesel


Market determined fuel :
Petrol

1.1

-9.20

-4.18

-10.86

-10.25

-5.44

Aviation Turbine fuel

0.3

-33.41

-20.83

-20.09

-34.22

-12.05

Light Diesel Oil

0.1

-34.26

-19.89

-25.81

-34.36

-13.38

Bitumen

0.2

-26.08

-20.69

-22.74

-28.82

-4.95

Furnace Oil

0.5

-30.26

-34.86

-37.08

-41.05

-14.81

Lubricants

0.2

5.15

0.00

0.00

2.11

4.73

3.5

1.73

1.06

1.06

3.74

5.88

Electricity

Source: CSO, ICICIdirect.com Research

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


Average

Average

May-15
-0.52
-0.29
-0.57
4.20
-2.01
5.14
2.61
-0.14
-1.18
4.88

Apr-16
0.71
8.01
-0.75
6.40
-0.36
3.02
1.17
2.03
-0.79
0.56

May-16
0.91
7.54
-0.43
6.36
-0.35
0.25
1.37
1.11
-0.79
1.48

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

-4.01
0.90
1.40

-4.65
0.15
1.16

-3.31
0.37
1.16

-6.63
0.25
1.33

0.62
2.28
1.28

Month

Lower global commodity prices contained core inflation

Weights
Manufactured Goods
65.0
Food Products
10.0
Manufacturing Ex Food
55.0
Beverages & Tobacco
1.8
Textiles
7.3
Wood & Wood Products
0.6
Paper & Paper Products
2.0
Leather & Leather Products
0.8
Chemicals & Chemical Products
12.0
Non-Metallic Mineral Products
2.6
Basic Metals
Machinery & Machine Tools
Transport, Equipment & Parts

10.7
8.9
5.2

Source: CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 8: WPI expands for second consecutive month


24

10

18
12

-5

-6

-10

-12

-15

Food Articles

Apr-16

May-16

Feb-16

Manufactured Goods(LHS)

Mar-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

May-15

Feb-15

WPI (LHS)

Mar-15

Jan-15

Dec-14

Oct-14

Nov-14

Sep-14

Jul-14

Aug-14

-18

Fuel Group

Source: CSO, ICICIdirect.com Research

Exhibit 9: Crude oil prices Indian basket - marginal uptick in April

Exhibit 10: Core WPI continues in negative zone

Apr-16

-3.0

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

Feb-16

Dec-15

Oct-15

Aug-15

Jun-15

Apr-15

-2.0

-2.09
-2.08
-1.51
-0.99
-0.75
-0.43

-1.0

28

-0.95
-1.39
-1.92
-1.93
-2.10
-1.98

0.0

-0.57

39.85

38

$/bbl.

1.0

48

-0.38
-0.41

2.0

58

1.43
0.90
0.07

3.0

68

Crude Oil prices (Indian basket)

Fuel group

Mineral Oils

Brent Crude (RHS)

Source: Bloomberg, CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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

13.0
6.0
-1.0
-8.0
-15.0
-22.0
-29.0
-36.0
-43.0
-50.0

15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
-30.0

80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

$/bl

May-16

Mar-16

Jan-16

Nov-15

Sep-15

Jul-15

May-15

Mar-15

10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
-30.0

Jan-15

Exhibit 12: Rising global commodity prices stresses domestic inflation

Nov-14

Exhibit 11: Global crude oil price raises domestic mineral oil inflation

Sep-14

Source: CSO, ICICIdirect.com Research

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

Rupee Depreciation(LHS)

IMF Commodity Index

Source: Bloomberg, IMF, ICICIdirect.com 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
We /I, Sachin Jain, CA, and Isha Bansal MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:


ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia,
engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is Indias largest private sector bank and has its various
subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (associates), the details in respect of which are
available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking
and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.
Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in
respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned
in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation
or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any
material conflict of interest at the time of publication of this report.
It is confirmed that Sachin Jain, CA, and Isha Bansal MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve
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, and Isha Bansal MBA, 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.

ICICI Securities Ltd | Retail Equity Research

Page 7

You might also like