The perishable food cycle has reversed. But the base effect created by low oil prices was enough to not let a 1.32 percent up tick in month-on-month inflation in April adversely affect the yearly number. In April, consumer price index was up by mere 2.11 percent - lowest so far in many years. Previous years April monthly inflation was recorded at 1.7 percent, which is one reason for subdued inflation in April 2015.
It seems that the yearly inflation has yet not bottomed out. The high base effect is likely to keep inflation hovering around 1-2 percent till November as oil prices started falling sharply after November last year, and it may inch up to 5-6 percent after that. The numbers are calculated by assuming an average 0.5 percent increase in inflation every month now onwards.
High monthly inflation in April is due to up tick in perishable food items, slight upward revision in fuel prices and quarterly recording of house rent index. The perishable food items after falling by 30 percent in October - February are up by 17 percent in February - April. There is nothing to worry as due to weak farm to market linkages, the prices are usually volatile in perishable food items. The sensitive price index movement in the last three weeks reveals that northward journey of perishable food items may reverse in May.
The second factor contributing to higher monthly inflation in April was a 2.74 percent hike in motor fuel as petroleum prices were increased resulting in transportation sub index inching up. But for May, the fuel prices have been kept constant despite the fact that international prices have moved up. The government has adjusted GST downwards to keep the prices at previous months levels.
The third factor for higher CPI in April was the upward revision in house rent index in April. The PBS conducts house index survey every three months and the index increased by 0.69 percent in April and has contributed significantly towards the monthly increase in inflation. The house rent index will remain unchanged in May and will help softening monthly headline numbers.
In a nutshell, the monthly CPI will remain low in May and yearly number may hover around 2 percent. The 10MFY15 averaged at 4.8 percent and the full year average is expected to remain around 4.5 percent. The core inflation came down to 5.4 percent in April as compared to 5.9 percent in March. Trimmed core tamed down to 3.1 percent from 3.7 percent in the previous month.
Unsurprisingly, all of this calls for further easing in monetary policy - the market expects a 50 bps cut to 7.5 percent in the upcoming review.
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April - 2015 CPI - Key items
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YoY (%) MoM (%)
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General 2.11 1.32
Food & bev -1.05 1.53
Non-persishable 0.32 0.14
Perishable -8.46 10.67
Clothing & footwear 7.12 0.98
"Housing, water,
electricty, gas & fuels" 4.88 0.69
Transport -9.57 0.89
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Source: PBS
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