Falling core inflation reaffirms weak demand-side pressures
CRISIL Research has come out with its report on inflation data of December 2012. The research firm expects average WPI inflation to moderate to 7.0 per cent from 7.7 per cent forecast for 2012-13.
January 15, 2013 / 15:59 IST
CRISIL Research has come out with its report on inflation data of December 2012. The research firm expects average WPI inflation to moderate to 7.0 per cent from 7.7 per cent forecast for 2012-13.
WPI-based inflation declined to 7.18 per cent in December from 7.24 per cent in November. Continued moderation in core inflation created downward pressure on overall inflation, offsetting the impact of a sharp rise in primary 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 in November. Despite rising input costs due to a weak rupee and fuel price revisions, core inflation has continued to moderate. This is indicative of the limited pricing power of corporates due to slowing demand in the economy. Food inflation, 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 (assuming normal monsoons), a stronger rupee and lower international crude oil prices (Europe Brent expected to average $100 per barrel in 2013-14 compared to $109 per barrel in April-December 2012). Moreover, demand-side pressures are expected to remain weak due to the lagged impact of a sharp slowdown in GDP growth this fiscal year. In view of a sustained moderation in core inflation over the last 4 months and anticipation of a lower core going ahead, we expect the RBI to cut policy rates by 25 bps in its monetary policy review on January 29th, 2013.To read the full report click on the attachmentDisclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
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