Economy First inflation

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CRISIL EconomyFirstCut

Overview: WPI-based inflation declined to 7.18 per cent in December from 7.24 per cent in November. Continuedmoderation in core inflation created downward pressure on overall inflation, offsetting the impact of a sharp rise inprimary food inflation to 11.2 per cent in December. Core inflation – as measured by non-food manufacturing inflation – declined for a fourth consecutive month and stood at 4.2 per cent in December, down from a peak of 5.8 per cent in

August 2012. CRISIL Core Inflation Indicator (CCII) also declined to 5.5 per cent in December from 5.7 per cent inNovember. Despite rising input costs due to a weak rupee and fuel price revisions, core inflation has continued tomoderate. This is indicative of the limited pricing power of corporates due to slowing demand in the economy. Foodinflation, which had declined to 6.6 per cent in October, has re-entered the double digit zone after 4 months. Lower kharif foodgrain production affected by a delay in monsoons as well as a hike in minimum support prices in June 2012,created upward pressure on food prices.

In 2013-14, CRISIL Research expects average WPI inflation to moderate to 7.0 per cent from 7.7 per cent forecast for 2012-13. Easing of inflationary pressures is premised on the expectation of higher agricultural output (assumingnormal monsoons), a stronger rupee and lower international crude oil prices (Europe Brent expected to average $100per barrel in 2013-14 compared to $109 per barrel in April-December 2012). Moreover, demand-side pressures areexpected to remain weak due to the lagged impact of a sharp slowdown in GDP growth this fiscal year. In view of asustained moderation in core inflation over the last 4 months and anticipation of a lower core going ahead, we expectthe RBI to cut policy rates by 25 bps in its monetary policy review on January 29

th, 2013.

Figure 1: Primary food inflation returns to double-digit

levels after 4 months

Figure 2: Core falls for a fourth consecutive month, indicating

slowing demand-side pressures

Source: Ministry of Commerce and Industry Source: Ministry of Commerce and Industry, CRISIL Research

The double-digit inflation in primary food articles was spurred by an 18.7 per cent inflation in foodgrains and a

sharp increase in inflation of fruits and vegetables to 13.2 per cent in December from 3.1 per cent in

November. Among non-food primary articles, inflation in oilseeds has risen to 29 per cent in December from

13.4 per cent in April 2012, posing significant upside risk to overall primary inflation.

Note: CCII* - CRISIL Core Inflation Indicator is manufacturing inflation excluding base metals inflation

11.2

13.2

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

D e c - 1 1

J a n - 1 2

F e b - 1 2

M a r - 1 2

A p r - 1 2

M a y - 1 2

J u n - 1 2

J u l - 1 2

A u g - 1 2

S e p - 1 2

O c t - 1 2

N o v - 1 2

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y-o-y,%

Primary food

inflation

Primary non-food

inflation

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

D e c - 1 0

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y-o-y (%)

RBI Core Inflation

CCII*

Inflation: Falling core reaffirms weakening demand-side pressures

January 2013



CRISIL EconomyFirstCut – Inflation

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Inflation in major inflation groups Apr-Dec

(2004-05 base) Weight Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 FY12 FY13

General 100.0 7.5 8.0 8.1 7.3 7.2 7.2 9.4 7.6

Primary 20.1 10.5 11.2 9.2 7.8 9.4 10.6 10.9 9.8

- Food articles 14.3 10.2 9.3 8.1 6.7 8.5 11.2 8.1 9.6

- Non-Food articles 4.3 13.3 14.1 10.4 11.4 14.0 13.2 13.8 10.3

- Minerals 1.5 8.7 18.1 13.9 8.6 7.6 3.7 24.5 10.5

Fuel 14.9 8.4 8.7 12.0 11.6 10.0 9.4 13.6 10.6

of which

- Petrol 1.1 8.7 9.5 6.7 3.8 1.5 3.4 25.3 7.4

- Diesel 4.7 0.0 0.5 8.9 14.6 14.6 14.6 8.2 8.7

Manufacturing 64.9 5.9 6.4 6.5 5.9 5.4 5.0 7.7 5.7

- Food 9.9 7.0 9.3 10.3 9.8 10.0 9.0 7.6 8.2

- Non Food 55.0 5.6 5.8 5.7 5.2 4.5 4.2 7.8 5.2

- CCII 55.9 5.4 6.2 6.5 6.0 5.7 5.5 7.5 5.4

Source: Ministry of Commerce and Industry, CRISIL Research

Analytical Contacts:

Sunil Sinha Neha Duggar Saraf

Principal Economist, Crisil Research Junior Economist, Crisil Research

Email: [email protected] Email: [email protected]

Media Contacts:

Priyadarshini Roy Jyoti Parmar

Communications and Brand Management Communications and Brand Management

Email: [email protected] Email: [email protected]

Phone: +91 22 3342 1812 Phone: +91 22 3342 1835



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Last updated: April 30, 2012

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Economy First inflation

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