April 2013 Inflation Below 5%

There was a time when inflation was a killer for the markets a few months ago but the scenario has changed as the inflation numbers have moderated. The latest CPI and WPI inflation numbers have softened in a way that the markets have turned positive. After an almost 2% fall in the indices on May 13, 2013, the moderation in the WPI numbers have provided a key support to the markets. The March 2013 WPI inflation numbers came in at 4.89% against 5.96% in March 2013.

Earlier the CPI came back in single digits to 9.39% for April 2013 from 10.39% in March 2013. The cooling of inflation bodes well for the country as it indicates that the prices are falling faster than expected. This will help the RBI to cut rates faster and aid the retail banks in transmitting lower rates to the consumers. Higher inflation has been a problem for the country for the last 3 years now, which has reduced the growth prospectus of the country. Economists are mostly expecting a repo rate cut by 50-75 bps for FY14.

For April 2013, the food articles inflation cooled off as it grew by 6.8% compared to 8.73% in March 2013. Fuel and power inflation has also shown easing as it rose by 8.84% against 10.18% in March 2013. Most items in the manufactured products have shown an easing in prices. Textiles, beverages, Leather & Leather Products and Machinery & Machine Tools are the only manufactured products which have shown a rise in prices. Iron and metal prices have shown a consistent drop in prices which may not be a positive sign for the metal industry.

At 4.89%, April 2013’s WPI is the lowest since from November 2009. Meanwhile, the February 2013 inflation has been revised upwards from 6.84% to 7.28%.

Overall, the markets have seen a drop in inflation as a key positive for the indices which have gone up. The widening trade deficit and lower growth in the country is a risk to the economy and thus to the markets.