May’13 Inflation Above Expectation

Inflation which was seen declining is back to trouble the markets. It has not risen sharply but has remained above expectations, showing the stickiness that made the RBI increase the repo rates sharply.

The Consumer Price Index (CPI), indicative of retail inflation in the country, came in at 9.31% for May 2013 against 9.39% for April 2013. The market was expecting the CPI for the month to be at 8.9%.

The CPI for food items came in at 10.65% against 10.61% in April 2013. Inflation has also shown some easing in rural and urban areas. The CPI reading for rural and urban areas stood at 8.98% and 9.65% respectively against 9.16% and 9.73% correspondingly in April 2013.

Earlier the IIP data for April 2013 indicated that the industrial production in the country has shown no positive sign of revival as it came at 2% against an expectation of 2.6%.

Following these numbers, the market is now eying the WPI numbers, due in the next week and will determine the fate of rate cuts (if any) by the RBI.

Madan Sabnavis, Chief economist at Care Ratings said, “The CPI numbers indicate that inflation is controlled but is at an uncomfortable position”. He further said that the IIP numbers are stagnant for April, 2013. Moreover, he is worried as consumer spending has taken a beating in the month. Usually in April, rural households spend more money, owing to the Rabi harvest but this time he believes that the money is being spent on gold rather than other consumer goods. Besides, he also said that food inflation remains in double digits and the next months’ CPI numbers may further rise leaving less room for a rate cut. Sabnavis also said that he is not expecting any rate cut in the upcoming monetary policy meet.

All eyes are now set on the release of WPI data on Friday (June 14) and the RBI policy meet on Monday (June 17). The RBI uses WPI as a main inflation tool and hence the WPI would be watched very carefully.