Monthly Inflation

April 14, 2016

Inflation

CPI March 2016 at 4.8%

Items
CPI
CFPI
Core CPI
Fuel

Weights(%)
100.0
39.1
47.3
6.8

Jan-16
5.69
6.81
4.79
5.32

Feb-16
5.26
5.35
5.00
4.59

Mar-16
4.83
5.19
4.77
3.38

Weights(%)
45.9
2.4
6.5
10.1
6.8
28.3

Jan-16
6.66
9.03
5.71
5.20
5.32
3.95

Feb-16
5.52
8.46
5.60
5.33
4.59
4.38

Mar-16
5.27
8.51
5.50
5.31
3.38
4.01

MoM inflation (%)

Particulars
CPI
Food & Bev
Fuel & light
Housing
Clothing
Misc

Weights
100.0
45.9
6.8
10.1
6.5
28.3

Key readings

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

CPI surprises positively

Dec-15

Jan-16

-0.39
-0.98
0.33
-0.41
0.31
0.17

0.16
-0.08
0.57
0.82
0.39
0.17

Feb-16 Mar-16
-0.24
-1.07
0.33
0.81
0.54
0.51

CPI March 2016 eased, rising just 4.83%, hitting a six month low.
(Bloomberg Survey: CPI: 5.00%). CPI February 2016 was revised to
5.26%. CPI dropped more than expected, mainly led by a more-thanexpected drop in prices of vegetables. Pulses inflation also continued to
soften. Core CPI surprised positively by rising just 4.56% (0.2% MoM) as
compared to 4.80 in February 2016 driven by lower transport and
communication inflation

CPI: Decline in food prices drags headline CPI

The fall in CPI exceeded expectation, the major surprise stemming from
softening of vegetable prices which grew only 0.7% YoY, supported by
benign pulses prices which declined -1.9% MoM. Apart from pulses,
high inflation in meat and eggs kept protein-ex-pulses inflation elevated.
Cereals and sugar inflation also witnessed slight uptick and are expected
to s going forward. Since vegetables and fruits prices have moderated
and no other component poses upside risk, food inflation is expected to
remain benign going forward

A major surprise came in core inflation which declined to 4.56% in

March from 4.80% in February. This pullback was driven by decline in
retail prices of petrol which reflected in transport inflation which declined
to 0.9% in March from 2.48% in February. Service inflation was also
benign at 4.01% in March as compared to 4.38% in February. Going
forward, we expect core inflation (ex-transport and communication) to
remain flat

0.00
0.00
-0.65
0.40
0.23
0.17

Softening inflation raises expectations of rate cut in H2FY17

The Indian Meteorological Department (IMD) has predicted a high probability
of an above-normal monsoon this year with its forecast at 106% of the Long
Period Average (LPA). This comes as positive news for the Indias farming
sector which has been under stress due to two back to back poor
monsoons. RBIs trajectory for headline inflation is 5.3% in Q1FY17, 5.1% in
Q2FY17, 5.0% in Q3FY17 and 5.1% in Q4FY17. CPI at 4.8% is below the
RBIs target and is expected to remain benign given the low commodities
prices and no supply side constraints. RBI stance in the monetary policy on
April 5 has been accommodative and growth oriented. A room for further 25
bps rate cut exists which will likely happen in H2FY17 after closely watching
the 7th pay commission, monsoon developments, global conditions and
extent of transmission of the previous rate cuts

Research Analyst
Kajal Gandhi
kajal.gandhi@icicisecurities.com
Isha Bansal
isha.bansal@icicisecurities.com

Agriculture reforms: Could be a game changer

National e-Agriculture market initiated by government, which will be
launched by PM on April 14th, will enable farmers in 8 states, including UP, to
sell online 25 commodities in 21 wholesale mandis and get better prices.
The government is targeting to integrate 585 wholesale mandis across the
country with national e-agriculture market (NAM) by March18 to allow interstate sale of agri-produce. If executed effectively, it will smoothen the
supply, ensure prices stability apart from farmers getting fair price of their
produce.
In Union Budget 2016, the government increased the allocation for the Price
Stabilisation Fund from | 500 crore to | 900 crore. This is an essential step
by the government to contain prices of essential commodities, especially
pulses

ICICI Securities Ltd | Retail Equity Research

Exhibit 1: CPI Breakdown by components (YoY %)

8.0
7.0
Out of the headline number of 4.8%, around 50% or 2.4%

6.0

came from food index. Services inflation was the second

5.69

5.26

5.0
%

biggest contributor at 1.1%

6.81
5.35 5.19

4.83

5.32

4.79 5.00 4.77

4.59
3.38

4.0
3.0
2.0
1.0
0.0
CPI

CFPI
Jan'16

Core CPI
Feb'16

Fuel

Mar'16

Source: CSO, ICICIdirect.com Research

5.31
5.33

5.60

5.50

4.86

5.68

5.66
5.68

4.79

4.68

5.31
5.33
Health

5.0

4.95
4.88

6.0

Household goods and

services

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

2.48

4.0
0.91

1.0

Housing

Clothing and footwear

Feb-16

Personal care and effects

Mar-16

Education

0.0
Recreation and
amusement

of cut in retail prices of petrol

2.0

Transport and
communication

The transport index declined to 0.9% in March on account

3.0

Source: CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

RBIs inflation projections

CPI inflation is expected to average at 5.3% in Q1FY17, 5.1% in Q2FY17,
5.0% in Q3FY17 and 5.1% in Q4FY17. CPI came in at 4.8% in March 2016,
surprising positively on the downward side, thus increasing the chances for
the RBI to cut the repo rate by 25 bps in FY17.
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

Nov-15
6.08
1.70
5.34
4.03
6.59
2.07
4.00
46.08
-8.62
10.53
4.55
6.69
9.50
5.76
4.95
5.28
3.78
5.20
5.31
0.63
4.84
6.13
4.31

Dec-15
6.31
2.12
6.57
3.94
7.06
0.64
4.63
45.92
-6.16
10.83
4.45
6.82
9.27
5.74
5.06
5.45
3.95
5.19
5.47
1.27
5.00
5.61
3.55

Month
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

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

Source: CSO,ICICIdirect.com Research

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

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

Mar-16

Jan-16

Nov-15

Sep-15

Jul-15

May-15

36.42

Exhibit 5: Low global commodity prices anchor domestic inflation

68
63
58
53
48
43
38
33
28

Mar-15

$/bbl.

Exhibit 4: Crude oil prices Indian basket upward trend since two
months

Rupee Depreciation(LHS)

IMF Commodity Index

Crude Oil prices (Indian basket)

Source: Bloomberg, CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Source: Bloomberg, IMF, ICICIdirect.com Research

Page 3

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 4

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