Inflation data based on Wholesale Price Index (WPI) for September eased to 5-year low at 2.38 percent against 3.74 percent on a month-on-month basis on lower food and fuel prices.
Food inflation, which came in at 33-month low, stood at 3.52 percent against 5.15 percent, while the fuel and power group inflation came in at 1.33 percent against 4.54 percent on a month-on-month basis. Manufactured products inflation came in at 2.84 percent against 3.45 percent. The July WPI inflation has been revised to 5.41 percent from 5.19 percent.
A CNBC-TV18 poll had estimated WPI to come in at 3.1 percent on a lower primary and fuel inflation.
Even the consumer price inflation data for the month of September, which was released yesterday, 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.
Reacting to the data, finance minister Arun Jaitley said that the fall in inflation data is heartening and that the food inflation is now under control. "Today’s data release for WPI for September at 2.38 percent shows that inflation fell significantly dipping to a five-year low. Data for consumer price inflation for September at 6.46 percent released yesterday had also shown a decline, he said.
He further added that the government is committed to continuing reforms in food markets that will improve supply responses and keep inflation low and stable. "Growth in vegetable and protein prices that have been contributing to the recent increase in inflation rates have shrunk thanks to the steps taken by the government. Fiscal consolidation and a new monetary policy framework will help bring down inflationary expectations. We are confident that soon we will be achieving a low and stable inflation rate," he said.
Elated by the double cheer brought in by CPI and WPI, Aditi Nayar, Senior Economist at ICRA, said falling crude, commodity prices coupled with softening food, have helped in bringing down the inflation numbers. Nayar had expected WPI number at around 3-3.1 percent, and says 2.38 percent is definitely positive news.
“The good news at this point in time is that we haven’t seen the impact of diesel cuts yet. That would bring some more softening going ahead and something to look forward to. However, we should still remain little bit cautious as far as other food prices are concerned other than the vegetable reversals,” she told CNBC-TV18.
According to ICRA’s immediate term trajectory expectations, CPI will fall below 6 percent by November and then rise up to around 7 percent in December-March. After that it will be back on Monsoon watch from April onwards.
Nayar expects commodity prices to stay low for a long period but feels the effect will go away.
“This year fuel and light has shown a downtrend also because electricity tariff has not been hiked in large number of states. Next year possibly we are going to see fairly steep increases across quite a number of states and that’s something that will bring in a new factor that will firm up inflation, which doesn’t exist at this point in time,” she said. Nayar expects the first rate cut at around June 2015.
According to Samiran Chakraborty, Head of Research at Standard Chartered Bank, the numbers reflect the decline in global commodity prices as it is WPI that picks up the metal, chemical and fuel price declines faster than CPI. He expects the core inflation to come in lower than 3 percent (better than 3.5 percent seen last month).
“So in conjunction with the food price decline which is reflected in both CPI and WPI, the WPI move looks spectacular. Therefore, very good news that on both WPI and CPI we are now getting confirmation that the inflation numbers are low,” he said.
Though Chakraborty agrees the projected inflation trajectory should shift downwards by about 70 bps, he feels it is better to rather wait for couple of more months to check the sustainability of the current momentum change.
“If we simply look at this 70 bps downward shift in the trajectory then we are still probably looking at something like 6.5-7 percent inflation by September next year and in that situation, we might not see an immediate rate cut coming in. But if there is also a momentum shift then even the rate cut could also be on the table,” he said.
Discussing the yield trajectory, Vivek Rajpal, Rates Strategist at Nomura India, said it has been quite favourable for sometime, “but will still be gradual decline”. He expects levels of 8.20-8.25 percent in this fiscal year by January.
And how is the 10-year likely to look one year down the line? Rajpal expects it to be closer or slightly below the repo rate. “I wouldn't be surprised given the inflation the way it is behaving. Before we get the actual rate cut from Reserve Bank of India (RBI), the 10-year bond should trade below 8,” he added.
Within the monthly WPI data, growth in its respective components (MoM) stood at:
Vegetable Index down 13 percent Primary Articles Index down 1.3 percent All Commodities Index down 0.4 percent Manufactured Products Index unchanged Non-food Articles Index down 2 percent Primary Articles Inflation at 2.18 percent against 3.89 percent Fuel & Power Group Index down 0.3 percent Food Articles Index down 1.4 percent
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