Sept CPI inflation cools down to all-time low of 6.46%

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Moneycontrol Bureau

The consumer price inflation for the month of September cooled off to its all-time low of 6.46 percent, the lowest since India started computing consumer price index (CPI) in January 2012, led by lower food prices and fuel costs. The food inflation trimmed down to 7.67 percent against 9.42 percent month-on-month. The vegetable price inflation lowered significantly to 8.59 percent versus 15.15 percent from August.The August CPI inflation has been revised to 7.73 percent from 7.8 percent.

A CNBC-TV18 poll expected the data to be around 7.2 percent. The wholesale price inflation is also expected to tick down to 3.3 percent from last month's 3.7 percent, due to a steady fall in global crude oil prices, which hit a near two-year low on Thursday. The WPI data will be released on Tuesday.

However, the index of industrial production (IIP) for the month of August that came below expectations, at 0.4 percent against 0.5 percent in the month of July may keep the market jittery.The RBI has set a target of bringing inflation down to 8 percent by January 2015 and 6 percent by January 2016 but Governor Raghuram Rajan has admitted to upside risks on the latter target.What experts saySajjid Chinoy, Chief India Economist, JPMorgan believes the numbers were on expected lines of around 6.6 percent and will continue to fall further for October and November. He expects the October CPI data to be closer to even low sixes in October and below 6 percent in November.

Echoing his views, Soumya Kanti Ghosh, Chief Economic Advisor, SBI says the core CPI should see significant moderation this month and could even head lower due to   fall in crude prices and also the fact that vegetable prices have actually declined at the mandi level on a month on month basis.

“It is obviously a very positive inflation number for the bond market and the bond market will take it on the chin,” says Neeraj Gambhir, MD and Co-Head - Fixed Income (India), Nomura. However, yields will fall only when there is no Open Market Operations (OMO) tomorrow.

“If there is no OMO announcement then clearly the market can rally by another 5-7 basis points tomorrow,” he adds.

Will RBI cut rates?

Chinoy believes the Reserve Bank is going to be quite patient and will be in no hurry to cut rates anytime soon. Cooling down of CPI is good news and reflects disinflation is in progress but it is too early for any rate cuts, he adds.

Agreeing with him, both Ghosh and Gambhir too believe that the economy is in a prolonged pause period and so, rate cuts are still some time away.

Market veteran Dipan Mehta, member, BSE & NSE too agrees that the trimming down of data is a positive for the market but nothing has come from the government side, the supply constraints still remain and the structural issues with inflation are yet to be taken care of and therefore, even if the data point is low the RBI will take some more time to cut rates.