India: Base effect and food cause a temporary spike in inflation
- March-2014 WPI and CPI inflation spiked 100 bps and 30 bps respectively, thereby reversing the recent declining trend
- Core inflation exhibited differential trends, with core WPI at 12- month high of 3.5% while core CPI has remained below 8%
- We expect adverse base to keep inflation elevated for next two months and then moderate to achieve RBI’s 8% target by January-2015. Hence, we expect the RBI to maintain status quo
Inflation reverses declining trend in March-2014
Inflation, at both retail and wholesale level, edged higher in March-2014. WPI inflation rose to 5.7% YoY versus prior reading of 4.7% while CPI clocked 8.3% YoY as against 8.0% in February. Core inflation, however, exhibited differential trends. While core WPI surged to 3.5% YoY from 3.2% in February, core CPI edged down to 7.82% YoY versus FYTD average of 8.0%.
The spike in inflation levels in March-2014 is attributable to an unfavourable base effect coupled with rise in food prices, on impact of adverse weather conditions. Hence, we believe that the spike is temporary and would reverse from June-2014 on the assumption of a normal monsoon.