Unfavourable base, but lower core to help CPI: Stanchart

Anubhuti Sahay, Senior Economist-Global Research, Standard Chartered expects the CPI to come in at 5.5 percent on the old base. She spoke to CNBC-TV18 on the factors that will come into play in January consumer price index (CPI) data today.

Bank Below is the transcript of Anubhuti Sahay's interview with Ekta Batra & Anuj Singhal on CNBC-TV18. Ekta: your expectations on the consumer price index (CPI) data which will be on a new base, any estimate you have managed to work out? A: On the old base we expect CPI to come at 5.60. There are three factors that’s play in this month – (1) we have unfavourable base effect which effectively adds around 45 bps to the 5 percent CPI number in December (2) we have seen price pressures across pulses, edible oil and even for matter in some other food commodities but at the same time if you look at the disinflationary pressure in other components of CPI – that is expected to continue. So while we expect it at 5.6 percent on the back of unfavourable base effect and higher prices on the food front, a lower core CPI should help to keep the inflationary pressures under check.

Ekta: Any sense in terms of the changes which have been made in term of the weightage of the new CPI base for example less on food and little more in terms of miscellaneous that would be in more services, any idea in terms of how that could impact the CPI? A: We will get much clearer picture once the full data is released but just focusing on the weight redistribution and taking it one step lower that is weight redistribution within the each of the sub indices, our sense is CPI can see an headline impact of close to 30 bps. Let me stress again, this is based on our subjective assessment how the weights will be redistributed within each subcomponent and looking at the household expenditure survey the sense we get is that while households are spending less on food, they are moving away from cereals, which have recorded less inflation to food items like pulses, eggs, meat, milk which have seen higher inflation and not to forget even if you look at fuel and light, the revised wage show a reduction but at the same time it has been assigned to clothing and footwear which on a relative basis has recorded a much higher inflation. So, based on that I am just focusing on the weight redistribution, our sense is it can add 30 bps but this is based on our subjective assessment. We do not know how the methodological changes will have an impact on the actual index levels and not to forget that we are getting 21 new items. Therefore, the prices of those 21 items will also have an impact on the final CPI number. Anuj: What about the IIP data. What kind of numbers are you expecting? A: We expect Index of Industrial Production (IIP) to slip back in the contractionary territory in the month of December. if you look at the numbers of exports, core sector as well as auto production, there has been a complete change in the picture, for instance exports grew at greater than 7 percent in the month of November – that has slipped down in the contractionary territory of close to 4 percent. Core sector as well as auto production performance is half of what they did in previous month. So, if you put it altogether even if you expect the rest of the industrial sector to do better, we think IIP is likely to slip back in the negative territory.