“India retail basket of Inflation measured by Consumer Price Index (CPI) is seen firming 96bps in August to 3.32% YoY in from 2.36% in July when it rose 82 bps from the previous month.” Confirmed by Economist Siddharth V Kothari from Sunidhi Securities & Finances Pvt. Ltd..
Further explaining his statement he added, the surge in inflation during August is seen to be driven by 73% momentum (month-over-month) increase in onion prices as against July when 138% jump in Tomato prices led the spike in inflation. The spike in perishables prices is a regular feature varying over the magnitude and its timing thus nothing unusual about it. According to our estimates we expect a strong positive momentum in Vegetable Price Index of 8.1% over July and the Vegetable price Inflation is seen to be at 8.38% YoY vs -3.6% in July.
The reversal in inflation forces is largely seen to have its roots to the volatility in food basket alluding its temporary nature also responsible for the decline earlier this fiscal which seems to have largely evened out. Tomato prices have already dipped by over 30% in the current month over August. Thereby we do not expect the repeat in the magnitude of spike of a similar nature as the prices seen to stabilize and inflation from food basket normalize towards 3.5%-4% in the coming months considering the low base for the comparable months last year.
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Essentially the contribution (Change in inflation over prior month) for 96 bps increase in inflation is seen to be flowing from:
+78 bps from Food & Beverages
+2 bps from Housing
+2 bps from Fuel & Light and
+14 bps from Miscellaneous group.
Thus Contribution from Core segment of CPI basket is seen to be 16 bps and from the non-core segment of 80 bps to the overall inflation for the month.
We expect Core CPI Inflation firming towards 4.17% YoY in August from 3.81% in July given our estimates for 5.1% average increase in petrol prices, 3.8% increase in Diesel prices, 2.2% increase in Gold prices and 3.4% increase in Silver prices and 0.9% increase in Housing Index.
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August WPI Inflation Estimates: 3.35% (YoY) (2011-12 = 100)
• India’s August’17 headline Wholesale Price Index (WPI) based inflation is seen at 3.87% YoY from 1.88% in July as against a comparable 1.09% in August’2016. The Fuel & Power Inflation is seen reverting to a double digit 10.8% YoY from 4.37% in previous month. The Manufacturing Inflation is seen at four-month high of 2.61% YoY in August vs 2.18% in July. Primary Articles is expected to surge to 2.55% frpm 0.46% in the previous month as Food Articles Inflation is seen to be ~ 2.15% yoY in Aug from -3.47% in the previous month . The Core WPI inflation is seen accelerating to 2.71% YoY in Aug from 2.14% in July primarily led by metals prices.
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July IIP Estimates (2.2% YoY)
• July Index of Industrial Production is expected to show a growth of 2.2% YoYas against a contraction of -0.1% in June and a comparable 5.2% in Jul’16.
• The bulk of growth is expected from Mining where Coal production expanded after a contraction for previous two-months with the fading of the base effect. Mining is seen to show a growth of 11.1% YoY vs 0.4% in the previous month. Sharp drop in Coal production during Jul/Jun 16 had created a low base which is likely to result into a higher growth for July’17.
• Electricity segment is expected to return to a modest growth of 6.5% YoY in July from 2.1% in the previous month a comparable 2.1% growth in Jul’16.
• Manufacturing activity is expected to show a subdued growth of 0.5% YoY improving from -0.3% in June but way below the 6MMA growth of 1.5%.