Vegetable price correction dampens WPI; rising core inflation and disruptive weather to reverse this decline in the ongoing month-ICRA

The divergent trends in February 2014 as compared to the previous month in terms of an uptick in core-WPI (to 3.15% from 3.02%) and slight easing in core-CPI (to 7.9% from 8.1%), point to the varying compositions of these indices, with the latter dominated by services. Although the second round effect of higher diesel prices and the base effect may push up core-WPI slightly in the coming months, the outlook for commodity prices suggests that it would remain moderate and not pose a major concern to the Central Bank. Additionally, the extent of reset of electricity tariffs in FY15 would impact inflationary pressures.

With the process of correction in vegetable prices largely complete following arrival of the new harvest, the recent weather-related disruptions are expected to boost food and headline WPI inflation in March 2014. Nevertheless, enhanced moisture in the sub-soil may provide some buffer in the event of a below-normal monsoon in 2014. With a clearer picture of the impact of the magnitude, timing and spread of rainfall on agricultural output likely to emerge only by July-August 2014, monetary easing is unlikely in the intervening period.

Powered by Capital Market - Live News