April 15, 2014 Ecnmics Reversing its dwnward trend, the annual rate f inflatin as measured by the Whlesale Price Index (WPI) rse t 5.7% fr the mnth f March 2014. This figure is significantly higher than the inflatin rate recrded in the last three mnths but is in line with CARE s wn expectatin f an increase in WPI in March 2014 (5.42% was CARE s frecast) as the falling vegetable prices were expected t bttm ut juxtapsed with agriculture entering its seasnal trugh. Mirrring the trend in WPI, CPI fr the mnth f March 14 rse t 8.31% cmpared with 8.1% in February 14. This CPI inflatin f 8.3% cmes largely in tandem with CARE s frecast f 8.5%. Althugh CPI fr March 14 stands much lwer than the crrespnding inflatin rate in March 13, the rise cmpared t the previus mnth reverses the dwnward trend it fllwed fr the last three mnths. Whlesale Price Index (WPI) The table belw prvides a snapsht f WPI inflatin at terminal pints f FY13 and FY14 and als the average inflatin in the last tw fiscal years. Table 1: WPI inflatin (y--y %) Terminal Average Mar-13 Mar-14 FY13 FY14 - Primary articles 7.4 7.7 9.8 9.9 Fd articles 8.6 9.9 9.9 12.8 Nn fd articles 9.3 4.6 10.6 5.6 - Fuel and Pwer 7.8 11.2 10.4 10.1 - Manufactured prducts 4.3 3.2 5.4 2.9 WPI 5.65 5.70 7.36 5.92 Surce: MOSPI WPI at terminal pints WPI inflatin fr all cmmdities turned arund in March 14 t stand at 5.7% which is slightly higher than that in the crrespnding mnth f the previus year. Primary articles basket witnessed a marginal increase in inflatin frm 7.4% in March 13 t 7.7% in March 14. Within the primary article basket, inflatin in fd articles rse t 9.9% in March 14 cmpared with 8.6% inflatin in March 13. Owing t seasnal factrs, fd prices tend 1
t start an upward trajectry frm the mnth f March nwards. This is reflected in the abve data as fd articles edged up frm 8.12% in February 14 t 9.9% in March 14. - Mre particularly, vegetable inflatin sared t 8.57% in March 14 as ppsed t the -1.68% inflatin it recrded in March 13. Fruits als marked a sharp rise in inflatin at 16.15% cmpared with 5.67% in the crrespnding mnth in FY13. - Inflatin in cereals, rice, wheat and pulses declined n a year ver year basis. - Egg, Meat and fish inflatin als fell in March 14 ver March 13. Hwever, the rise in fd inflatin was ffset t a substantial extent by the fall in inflatin in the nn fd articles cmpnent f primary articles. Inflatin here slwed dwn significantly frm 9.3% in March 13 t 4.6% in March 14. This is als a further cntractin frm the 5.1% inflatin recrded in February 14. - There was a marked decline in inflatin in the tw majr cmpnents f nn fd articles: Fibres and il seeds. Inflatin in the frmer reduced t 8.80% frm 12.58% and in the latter frm 19.73% t 1.17%. - Inflatin in minerals rse marginally in March 14 but remained negative. Fuel and pwer inflatin which has been n the higher end ver the last six mnths rse t 11.2% in March 14 as ppsed t 7.8% in the crrespnding mnth f the previus year. This is the highest inflatin rate fr the industry in the last six mnths. Inflatin in manufactured prducts has drpped t 3.2% in March 14 frm 4.3% in March 13. This is reflective f the fact that the manufacturing sectr has had arguably a slack run in FY14. On the psitive side, the figure f 3.2% fr March 14 is higher than the annual average f 2.9% fr FY14. Average Inflatin Inspite f the high WPI inflatin which persisted fr the larger part f FY14, the average WPI inflatin fr FY14 stands much lwer at 5.92% as ppsed t the 7.36% f inflatin in FY13. Average inflatin in primary articles remains unchanged at 9.9% in FY14 vis-à-vis 9.8% in FY13. Hwever, there is a significant divergence within the tw cmpnents f primary articles. Inflatin in fd articles has escalated t 12.8% in FY14 cmpared with 9.9% in FY13 and inflatin in nn fd articles has decelerated t 5.6% frm 10.6% it averaged in FY13. Fuel and pwer inflatin n average has fallen nly marginally t 10.1% frm 10.4%. Average inflatin in manufactured prducts reduced sharply frm 5.4% in FY13 t 2.9% in FY14. This further reiterates the apparent slwdwn f the manufacturing sectr in the cuntry. Trend in FY14 The WPI path fr the larger part f FY14 can be divided int tw distinct trends (excluding the terminal mnths). WPI fell marginally in May 13 t 4.58% frm 4.77% in April 13. 2
Hwever, WPI inched upwards frm June 13 nwards driven primarily by the munting vegetable and fd prices. It reached the zenith in Nvember 14 at 7.52% due t the extremely high inflatin in fd articles (19.69%). Cntinuus rep hikes by the RBI since September 13 eventually seeped thrugh t the ecnmy even as fd prices began t turnarund. This facilitated the WPI t slide dwn t 6.2% in December 13 fllwing a cntinuus rise fr 6 mnths. WPI then cntinued declining upt 4.68% in February 14. WPI inflatin eventually turned arund in March 14 t rise t 5.7% as the fall in prices f vegetables ceased t cntinue any further. Cnsumer Price Index (CPI) The table belw gives an verview f CPI inflatin March ver March and the average in FY13 and FY14. Table 2: CPI inflatin (y--y %) Terminal Average Mar-13 Mar-14 FY13 FY14 - Fd, beverages and tbacc 12.3 9.1 11.8 11.1 - Fuel and light 8.3 6.3 8.6 7.4 - Clthing, bedding and ftwear 10.6 9.0 10.9 9.3 CPI 10.4 8.3 10.2 9.5 Surce: CSO CPI at terminal pints CPI stands significantly lwer in March 14 at 8.3% when juxtapsed t the 10.4% inflatin in March 13. There is a visible reductin in fd, beverages and tbacc inflatin frm 12.3% in March 13 t 9.1% in March 14. Hwever, this is still higher than the inflatin f 8.6% in February 14. - Similar t WPI, vegetables and fruits prices are respnsible fr this rise with the frmer rising by 16.8% in March 14 cmpared with 14.0% in Feb 14 and latter by 19.2% vis-à-vis an inflatin f 15.8% in the previus mnth. - There was als a rise in prices f pulses and prducts (4.5%) and milk and milk prducts (11.0%). Inflatin in fuel and light appears t have mderated sharply t 6.3% in March 14 frm 8.3% in the crrespnding mnth f the previus fiscal. Hwever, cmpared t February 14, inflatin in fuel and light has risen marginally (6.13% in Feb 14) Clthing, bedding and ftwear witnessed a fall in prices frm 10.4% in March 13 t 8.3% in March 14. It even stands lwer than 3.22% inflatin in February 14. 3
It was seen that smaller states f Ga, Mizram, Nagaland, Chhattisgarh, Assam, Meghalaya, Bihar, Jharkhand, Himachal Pradesh recrded inflatin abve the natinal average f 8.3% in March 2014 (y--y %). Whereas, the larger states f Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu Delhi etc were belw the natinal average inflatin. Tripura recrded the highest inflatin at 18% and Manipur was the lwest at 4.8%. Average CPI inflatin The average CPI inflatin has mderated t 9.2% in FY14 cmpared with 10.2% in FY13. Average inflatin in fd, beverages etc slwed dwn marginally t 11.1% Average inflatin in fuel and light reduced t 7.4% frm 8.6% in FY13. Inflatin in clthing, ftwear and bedding industry als fell t 9.35 cmpared with 10.9% in FY13. CARE s utlk fr FY15 With the nset f Fiscal 15, there appear t be certain upside risks t inflatin. A majr threat being the pssible El Nin effects in the event f which, mnsn might remain depleted in 2015. This will in turn affect agricultural prduce, thereby raising pressure n fd prices. Hence, it appears as if fd prices might remain a cncern in FY15. Any rise in fd inflatin will impact the CPI t that effect as well. Fuel prices are expected t remain stable (assuming glbal prices d nt change) cntingent n the decisin f the new gvernment regarding pricing f fuel (Diesel and LPG). Further, India being a fuel imprting cuntry, any untward mvement in the exchange rate will als affect the fuel prices. Prices f manufactured gds are frecast t pick up mderately in due curse in FY15 given that the IMF has prjected psitive grwth fr the develped ecnmies as it wuld translate int an increase in demand fr manufactured gds frm emerging ecnmies. This effect hwever might be limited. In light f the abve mentined cncerns, CARE frecasts WPI inflatin t be in the range f 5.5-6% in the cming mnths with a bias twards the upper bund in case f a mnsn failure r shrtfall. Likewise, CPI inflatin wuld remain vulnerable t the mnsn mvements and may be expected t be range bund arund 8% in the next tw mnths as the rabi crp flws in. RBI has als indicated in its latest plicy annuncement that inflatin might begin t rise ging ahead and has hence exercised a cautinary apprach which is likely t cntinue. 4
Cntact: Madan Sabnavis Garima Mehta Chief Ecnmist Assciate Ecnmist madan.sabnavis@careratings.cm garima.mehta@careratings.cm 91-022-67543489 91-022-61443526 Disclaimer This reprt is prepared by the Ecnmics Divisin f Credit Analysis &Research Limited [CARE]. CARE has taken utmst care t ensure accuracy and bjectivity while develping this reprt based n infrmatin available in public dmain. Hwever, neither the accuracy nr cmpleteness f infrmatin cntained in this reprt is guaranteed. CARE is nt respnsible fr any errrs r missins in analysis/inferences/views r fr results btained frm the use f infrmatin cntained in this reprt and especially states that CARE (including all divisins) has n financial liability whatsever t the user f this reprt. 5