The Indian Inflation Number continues to scale new highs and the Lip Service of Congress Govt’s Finance Minister & Prime Minister continues without any action; It appears to su that the Government has no control on the economy and continues to move with Agenda Driven Politics.
The Government’s inflation report announced last week showed that WPI inflation in India for October 2013 was recorded at 7% YoY, thus marking a 50bps sequential pick-up in headline inflation. Separately, the inflation print for August 2013 was revised upwards to 7% YoY from 6.1% YoY.
The increase in headline inflation was mainly driven by an increase in commodity price inflation which increased by 150bps. It is critical to note that core inflation now stands at a five-month high. Given that this metric captures the demand-supply dynamics in the real economy, this reading in turn may be indicative of the economy recovering from the adverse effects of the tight liquidity measures administered in July 2013 on growth (the measures were eased from September 2013 onwards).
Whilst we expect high food inflation to persist, the same is likely to be contained due to normal monsoons and is likely to record an improvement after 3QFY14. Finally, a 510bps increase in domestic coal and electricity prices (5.5% weightage) too contributed to the increase in inflation.
Regulated fuel price inflation (7.4% weightage: defined by Ambit to include petrol, diesel, LPG and kerosene), on the other hand, dropped by 420bps in October 2013, owing to a high base effect coming into play (created by the one-time diesel price increases administered last year in September).