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CPI inflation at 7.35%



Indian Economic Update


  • India Consumer Price Index (CPI) inflation came in higher than expectations at 7.35% YoY in Dec 2019 versus 5.54% YoY in Nov 2019, driven primarily by a sharp spike in food inflation and upward momentum in miscellaneous basket led by surge in telecom tariffs.
  • Food inflation jumped up to 14% YoY versus 10% YoY. This was primarily on account of surge in vegetable prices (with onions adding approximately 210 bps to headline numbers) which saw a sharp sequential spike of 8.72% MoM.
  • Core inflation came at 3.73% YoY (similar to our expectations), compared to 3.5%.
  • Wholesale Price Index (WPI) inflation also rose to 2.6% YoY in December from 0.6% YoY in November.
  • Headline Index of Industrial Production (IIP) growth surprised sharply to the upside, printing at +1.8% YoY in November, arresting the contractionary streak seen over the previous three months.
  • Manufacturing output significantly improved to clock a four-month high, aided by a very favourable base. 13 of 23 industry groups showed positive growth.
  • Trade deficit for December remained contained at USD 11.3 billion on a low import bill, but exports continued in the red. However, some core components of exports and imports showed sequential recovery.
  • Export contraction continued for the fifth consecutive month to clock -1.8% YoY in December, partly hampered by an unfavourable base. Import contraction narrowed in December, coming in at a six-month low, aided by a low base, and given some marginal uptick in domestic demand. Non-oil non-gold imports continued to contract for the seventh consecutive month.
  • Mr Michael D Patra has been appointed Deputy Governor of the Reserve Bank of India (RBI).
  • The RBI announced that it will continue with its ‘operation twist’ programme by announcing another INR 100 billion that will be conducted on Jan 23, 2020. The Indian Government announced a switch of securities of INR 250 billion.


Global Update


  • After eighteen months of negotiations, US-China were able to reach a limited phase one trade deal that at least shows that some progress has been made.
  • The trade deal highlights agreement on areas such as Chinese purchases of US goods and services, Chinese financial sector, technology transfer, US agricultural goods, a currency accord and an enforcement mechanism. The US for its part has maintained its modest easing in tariffs on Chinese imports but still has tariffs in place on two-thirds of the Chinese import basket.
  • Phase two negotiations are also due to commence but will only conclude after the US has had a chance to review the performance of China with respect to phase one.
  • The US Treasury lifted its designation of China as a currency manipulator.
  • After increasing sharply in November by 256,000, US payrolls growth moderated to its trend pace of approximately 145,000 in December. The unemployment rate remained unchanged at 3.5%, reflecting a still tight labour market.
  • Iran admitted that it accidentally shot down Ukrainian airliner, which killed all 176 people on-board.