August CPI seen lower at 3.47%; WPI at -4.43%

The consumer price index (CPI) is estimated to come in much lower at around 3.47 percent than the market and RBI estimate of around 4 percent. Range for CPI is seen between 3.3 percent and 3.6 percent. It would be a softer number compared to July, which was at 3.78 percent. Core CPI too is expected to come in at the same levels as last month at around 4.3 percent and the range is between 4.2 and 4.5 percent.One of the reasons for the softening could be because of the base impact; in the same month last year that is August 2014, the CPI come in at around 7 percent, core CPI was at 6 percent, food inflation was at 8.6 percent, vegetable inflation was at 10.8 percent. However, from the month of August 2014, the base impact had started moderating.Food and beverages is 46 percent of the CPI basket, which is expected to moderate further. Food inflation estimate that the economists are working with is around 2.3 percent, which compares to a softening that we saw vis-a-vis last month at around 2.9 percent.Overall, there were two petrol and diesel price cuts that took place in the month of August, which will reflect in transport and communication, which is basically the miscellaneous segment. Transport and communication is a quarter of the miscellaneous index and that is possibly estimated to decline to minus 0.9 versus 0.4 percent. The Wholesale Price Index (WPI) data as of July has contracted for the ninth consecutive month and is expected to come in at -4.43 percent for the month of August versus -4.05 percent in July.The deflation is expected to come in at around 4.43 percent due to a combination of lower global commodity prices as well as a lack of pick up in manufacturing, which is possibly expected to result in the lower number on WPI.  One must also note that the input prices themselves have been falling for manufacturers. However, it is not clear whether it is the input prices, which are helping manufactures in terms of keeping their prices lower, and hence reflecting on WPI or whether it is indicative of the fact that manufacturing is slowing.