Monthly Inflation

August 18, 2016

Inflation

CPI July 2016 surges ahead post 6% mark

Items
CPI
CFPI
Core CPI
Fuel

Weights(%)
100.0
39.1
47.3
6.8

May-16
5.76
7.50
4.69
2.94

Jun-16
5.77
7.77
4.55
2.92

Jul-16
6.07
8.39
4.63
2.75

May-16
6.29
8.04
5.56
5.37
3.03
4.26

Jun-16
7.20
7.66
5.37
5.35
2.94
3.96

Jul-16
7.46
7.35
5.01
5.46
2.92
3.85

Components of CPI
Items
Food&bev.
Pan,tob& intox.
Cloth & Foot
Housing
Fuel & light
Misc.

Weights(%)
45.9
2.4
6.5
10.1
6.8
28.3

CPI May ...............................................................................................................5.76% YoY

WPI May ..............................................................................................................0.79%YoY

Inflation surges ahead but outlook benign...

Key readings

CPI July 2016 moved up sharply to 6.07% from 5.7% in June

Food inflation continued its uptrend to 7.96% on account of heightened

inflation in segments like vegetables, pulse and sugars

Vegetables have become the highest contributor to inflation for June

2016. Although pulses remain the second highest contributor, the high
base effect will bring down its contribution in coming months

Core CPI for July was 4.6% YoY, similar to last month. The rise in core
CPI was mainly led by higher inflation in personal products. Inflation was
high in this category mainly due to higher gold prices. Other
components of core CPI were either flat or moved lower

WPI inflation more than doubled to 3.5% (1.6% in June 2016). Fuel &
power is the only broad segment, where deflation continued (-1%, from
-3.6%). Food inflation climbed to double digits (from 8.2% to 11.3%).
After being negative for 20 months in a row, non-food inflation turned
around

Inflation trajectory, however, is likely to ease in H2FY17 with the March

2017 reading close to RBIs 5% estimate

0.8
0.8
1.6

Wholesale price at 20 month high (WPI YoY %)

2

-2
-4
-6

Jan-15
-0.9
-2.2
Feb-15
Mar-15
-2.3
Apr-15
-2.4
May-15
-2.2
Jun-15
-2.1
Jul-15 -4.0
Aug-15 -5.1
Sep-15
-4.6
-3.7
Oct-15
-2.0
Nov-15
Dec-15
-1.1
Jan-16
-1.1
Feb-16
-0.9
-0.5
Mar-16
Apr-16
May-16
Jun-16

(%)

Components of WPI (YoY %)

Particulars
WPI
Primary Articles
Fuel & Power
Manuf.Goods

Weights Apr-16 May-16 Jun-16

100.0
0.79
1.24
1.62
20.1
3.41
5.49
5.50
14.9
-4.83
-5.83
-3.62
65.0
1.04
1.17
1.17

Jul-16
3.55
9.38
-1.00
1.82

CPI: Vegetables continue to drive up headline CPI

CPI for July, at 6.1%, was marginally above our and Streets
expectations of 6%. This is the fourth consecutive month of high
inflation (>5.5%) and the level is at a 23 month high. The reason for high
inflation is the base effect and spike in vegetables and pulses prices

However, the outlook for food prices is encouraging. Sowing of pulses

has been very good (+40% YoY) and should ideally result in bumper
output. The cut in petrol and diesel prices in August will help bring
inflation down. The base effect will start getting favourable from October
onwards and will also help push CPI lower

The current CPI print of 6.1% seems to be the peak data print. Good
monsoons will provide much needed relief. We expect pulses and
vegetables inflation to cool off. The moderation in food inflation should
result in CPI being around 5% by March 2017

MoM inflation (%)

Particulars
CPI
Food & Bev
Fuel & light
Housing
Clothing
Misc
WPI
Primary Arti.
Fuel & Power
Manuf.Goods

Weights

Apr-16 May-16 Jun-16

100.0
45.9
6.8
10.1
6.5
28.3
100.0
20.1
14.9
65.0

1.03
1.46
0.00
0.56
0.38
0.59
-0.74
-2.65
-1.12
0.33

1.02
1.67
0.33
0.32
0.31
0.58
0.69
0.12
2.38
0.59

1.17
2.09
0.49
-0.40
0.46
0.66
0.97
1.30
1.74
0.58

Jul-16
0.77
1.17
0.08
0.72
0.53
0.33
1.36
2.41
2.79
0.45

WPI: Sharp rise from low base

Research Analyst
Sachin Jain
sachin.ja@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Paralleling trends in CPI inflation, WPI inflation has showed signs of

hardening, fuelled by mounting food prices

WPI inflation continued to surprise led by a sharp increase in food prices.

Global commodity prices, which have come off their lows and
unfavourable base effect have been contributing to the upside in
inflation. However, with favourable monsoons, there is likely to be a
correction in food prices though headline inflation will continue to trend
up through the rest of FY17. Recent high frequency data indicates some
softening in food prices in August

Progress of monsoon to decide fate of inflation

The Krishi Kalyan Cess of 0.5% to build rural infrastructure
in India, which kicked in from June 1 on all taxable
services, is expected to add to inflationary pressure

Earlier this month, the central government announced a

moderate 4.3% hike in minimum support price (MSP) for
paddy, the main rain-fed Kharif crop, to | 1470 per quintal,
to keep food inflation within reasonable limits

The progress of monsoons, so far, has been quite satisfactory and has
largely been in line with the forecast made by the Indian Meteorological
Department (IMD). In July, which marks the most important month both in
term of quantum (accounts for 33% of total seasonal rainfall) as well as
timing of rainfall (germination of seeds and plant growth), rainfall was
abundant at 107% of LPA (7% surplus) thereby resulting in at par (100% of
LPA) rainfall in the first half of the current monsoon season. Going forward,
IMD has maintained its monsoon forecast for 2016 at 106% of LPA with
rainfall in the second half of the monsoon season expected at 107% of LPA
with rainfall in August expected at 104% of LPA.
The Reserve Bank of India will monitor macroeconomic and financial
developments for any further scope for policy action. It expects inflation to
reduce to 5% by March 2017. Although the central bank has enough leeway
time wise, firming international commodity prices, especially crude oil and
implementation of Seventh Pay Commission are going to put upward
pressure on inflation in coming months. Consequently, we expect a 25 bps
rate cut in this fiscal, provided inflation numbers roll out as per expectations.

Exhibit 1: CPI Breakdown by components (YoY %)

9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

8.39

7.50 7.77
5.76 5.77 6.07

4.69 4.55 4.63

2.94 2.92 2.75

CPI

CFPI

Core CPI

May-16

Jun-16

Fuel

Jul-16

Source: CSO, ICICIdirect.com Research

5.42
5.46

5.01

5.23

5.85

7.30
5.14
5.36

4.11

4.44

Housing

Clothing and footwear

Jun-16

Personal care and effects

Jul-16

Education

Recreation and
amusement

Transport and
communication

1.15

4.54
4.73
Health

1.06

4.62
4.38

8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

Household goods and

services

The transport index declined due to the positive base effect

Exhibit 2: Core CPI Breakdown by components (YoY %)

Source: CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

RBIs inflation projections

CPI inflation is expected to average at 6% in 2016-17 and moderate to
around 5% in Q4 of 2016-17.
Exhibit 3: CPI - Breakdown by components (YoY %)
Weights
45.9
9.67
3.61
6.61
3.56
2.89
6.04
2.38
1.36
2.5
1.26
5.55
2.4
7.9
10.1
6.8
28.3
3.8
5.9
8.6
1.7
4.5
3.9

Food and beverages

Cereals and products
Meat and fish
Milk and products
Oils and fats
Fruits
Vegetables
Pulses and products
Sugar and confectionery
Spices
Non-alcoholic beverages
Prepared meals
Pan, tobacco and intoxicants
Clothing and footwear
Housing
Fuel and light
Miscellaneous
Household goods and services
Health
Transport & comm
Recreation and amusement
Education
Personal care and effects

Mar-16
5.52
2.18
7.19
3.66
5.33
-0.64
0.70
38.30
0.61
9.87
4.24
6.50
8.30
5.52
5.33
4.59
4.38
4.88
5.25
2.39
4.79
5.68
4.77

Apr-16
5.27
2.43
7.74
3.33
4.85
-1.10
0.54
34.15
3.92
9.58
4.15
6.23
8.51
5.50
5.31
3.38
4.01
4.95
5.31
0.91
4.68
5.66
5.68

Month
May-16
6.29
2.51
8.23
3.40
5.13
1.74
4.98
34.21
11.18
9.80
4.30
5.89
8.04
5.56
5.37
3.03
4.26
4.85
5.21
1.82
4.49
5.54
5.73

Jun-16
7.46
3.07
6.60
3.35
3.96
2.79
14.81
26.86
16.79
8.61
3.84
5.50
7.35
5.01
5.46
2.92
3.85
4.38
4.73
1.15
4.11
5.36
5.85

Jul-16
7.96
3.88
6.57
4.13
4.96
3.53
14.06
27.53
21.91
9.04
4.25
5.63
6.83
5.23
5.42
2.75
4.01
4.62
4.54
1.06
4.44
5.14
7.30

Source: CSO,ICICIdirect.com Research

Exhibit 4: WPI - Breakdown by components (YoY %)

WPI was in the positive territory led by high food inflation,

which drove headline WPI higher

WPI
Primary Articles
Fuel & Power
Manufactured Goods

Weights
100.0
20.12
14.91
64.97

Jul-15
-4.00
-3.98
-11.56
-1.54

Month
Jun-16
1.62
5.50
-3.62
1.17

Jul-16
3.55
9.38
-1.00
1.82

Average
FY16
-2.49
0.31
-11.67
-1.10

Average
FY15
2.00
2.98
-0.95
2.42

Source: CSO,ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

Exhibit 5: Primary articles - Breakdown by components (YoY %)

Steps taken by government to check food price hike

1.

2.

3.

4.

The CCEA has approved the stock holding limit

order on onion for another year. This will enable
state governments to take effective de-hoarding
measures under Essential Commodities Act (ECA),
1955
Government officials had inspected the godowns
of 331 traders across Nashik district on August 22,
2015 and found that around 1.4 lakh quintals of
onions had been hoarded. As a result, traders have
started clearing their stock, leading to a rise in
supply and, thus, a drop in prices. Traders also
imported 10,000 tonnes, hence increasing supply
The Union Cabinet has approved the setting up of
an online National Agriculture Market (NAM). The
move is expected to provide choice to farmers to
sell the farm produce both in physical mandis or
online platforms. NAM would integrate all existing
Agricultural Produce Market Committees (APMCs)
across the country through an online platform
The government has said it will have all Food
Corporation of India (FCI) depots online by March
2016. FCI has invited a tender to hire a private
agency to implement this project A software to
accomplish this task has already been developed
and tested in one or two depots in Andhra
Pradesh. This will be scaled up and rolled out
across the country

Primary Articles
Food Articles

Jul-15
-3.98
-1.20

Month
Jun-16
5.50
8.18

Jul-16
9.38
11.82

4.1

4.93

10.90

13.57

7.66

3.99

1.8

-2.86

3.37

4.08

-1.66

6.70

Weights
20.1
14.3

Food Grains & Cerelas

Rice

Average
FY16
0.31
3.42

Average
FY15
2.98
6.08

Wheat

1.1

1.96

6.83

6.90

3.67

-0.29

Pulses

0.7

36.18

26.61

35.76

39.47

5.88

Fruits & Vegetables

3.8

-15.02

11.00

22.33

-1.31

5.35

Milk

3.2

5.30

3.24

3.24

3.28

9.97

Eggs, Meat & Fish

2.4

2.52

6.67

7.49

2.01

2.37

0.6
4.3

10.57
-0.51

7.97
5.72

5.27
9.49

14.64
3.51

21.68
-0.55

0.9

-10.88

14.26

25.90

-3.78

-10.20

1.8

-0.23

2.52

5.29

2.88

3.10

1.4
1.5

8.46
-29.83

4.90
-20.75

6.00
-14.28

8.44
-29.92

0.98
-10.96

Spices
Non-Food Articles
Fibres
Oil Seed
Other Non Food Articles
Minerals

Source: CSO, ICICIdirect.com Research

Exhibit 6: Fuel group - Breakdown by components (YoY %)

Weights
14.9

Jul-15
-11.56

Month
Jun-16
-3.62

Jul-16
-1.00

Average
FY16
-11.67

Average
FY15
-0.95

Coal

2.1

0.05

-5.16

0.68

0.05

-0.51

Mineral Oils
Controlled Fuel :

9.4

-18.14

-4.74

-0.82

-18.30

-2.79

LPG

0.9

-4.90

-0.98

-1.35

-4.11

0.65

Kerosene

0.7

-6.71

1.82

1.82

-6.27

-6.80

4.7

-15.91

1.13

6.57

-16.28

2.49

Fuel Group

High Speed Diesel

Market determined fuel :
Petrol

1.1

-11.14

-8.74

-10.30

-10.25

-5.44

Aviation Turbine fuel

0.3

-29.77

-18.30

-8.93

-34.22

-12.05
-13.38

Light Diesel Oil

0.1

-39.69

-18.67

-15.31

-34.36

Bitumen

0.2

-25.02

-25.10

-26.46

-28.82

-4.95

Furnace Oil

0.5

-37.85

-28.62

-18.28

-41.05

-14.81

Lubricants

0.2

5.15

0.00

0.00

2.11

4.73

3.5

5.85

1.06

-2.77

3.74

5.88

Electricity

Source: CSO, ICICIdirect.com Research

Exhibit 7: Manufactured goods - Breakdown by components (YoY %)

Month

Lower global commodity prices contained core inflation

Weights
Manufactured Goods
65.0
Food Products
10.0
Manufacturing Ex Food
55.0
Beverages & Tobacco
1.8
Textiles
7.3
Wood & Wood Products
0.6
Paper & Paper Products
2.0
Leather & Leather Products
0.8
Chemicals & Chemical Products
12.0
Non-Metallic Mineral Products
2.6
Basic Metals
Machinery & Machine Tools
Transport, Equipment & Parts

10.7
8.9
5.2

Average

Average

Jul-15
-1.54
-1.94
-0.57
3.15
-2.63
6.14
2.67
-1.89
-1.69
3.48

Jun-16
1.17
8.35
-0.53
7.14
-0.35
-0.05
1.70
0.76
-0.40
0.51

Jul-16
1.82
10.19
-0.22
7.03
0.71
-0.51
1.89
0.83
-0.20
1.82

FY16
-1.10
0.77
-1.49
2.86
-1.72
4.21
2.57
-0.13
-1.47
2.60

FY15
2.42
2.41
2.44
7.93
2.62
4.86
5.40
1.33
2.64
3.98

-6.28
0.30
1.25

-3.02
0.07
1.23

-2.30
0.15
1.31

-6.63
0.25
1.33

0.62
2.28
1.28

Source: CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 8: WPI expands for third consecutive month

10

24
18
12

-5

-6

-10

-12

-15
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16

-18

WPI (LHS)

Food Articles

Manufactured Goods(LHS)

Fuel Group

Source: CSO, ICICIdirect.com Research

48.5

38

Jul-16

May-16

Mar-16

Jan-16

Jul-15

Sep-15

Nov-15

28

Crude Oil prices (Indian basket)

Source: ppac.org.in, ICICIdirect.com Research

Source: CSO, ICICIdirect.com Research

Fuel group

Mineral Oils

Brent Crude (RHS)

Source: Bloomberg, CSO, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 12: Rising global commodity prices stress domestic inflation

13.0
6.0
-1.0
-8.0
-15.0
-22.0
-29.0
-36.0
-43.0
-50.0

15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
-30.0

Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16

80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

$/bl

May-16

Mar-16

Jan-16

Nov-15

Sep-15

Jul-15

May-15

Mar-15

Jan-15

Nov-14

10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
-30.0

Sep-14

Exhibit 11: Global crude oil price raises domestic mineral oil inflation

$/bbl.

58

0.00

5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0

68

1.43
0.90
0.07

Exhibit 10: Core WPI continues in negative zone

Dec-14
Jan-15
Feb-15
Mar-15
-0.38
Apr-15
-0.41
-0.57
May-15
-0.95
Jun-15
-1.39
Jul-15
Aug-15 -1.92
Sep-15-1.93
Oct-15 -2.10
Nov-15 -1.98
Dec-15 -2.09
Jan-16 -2.08
Feb-16 -1.51
Mar-16
-0.99
Apr-16
-0.53
-0.22
May-16
-0.24
Jun-16
Jul-16

Exhibit 9: Crude oil prices remain range bound

48

Rupee Depreciation(LHS)

IMF Commodity Index

Source: Bloomberg, IMF, ICICIdirect.com Research

Page 5

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 6

ANALYST CERTIFICATION
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ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation
or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any
material conflict of interest at the time of publication of this report.
It is confirmed that Sachin Jain, CA, and Isha Bansal MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve
months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the
publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.
It is confirmed that Sachin Jain, CA Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

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