CPI Cools Down to 2.33%CPI for November 2018

CPI Cools Down to 2.33%CPI for November 2018 recorded 2.33% vs. consensus estimate of 2.8% which is well within the RBI guidance. While Core CPI has softened to ~5.7% in November 2018 as compared to the previous month's 6.2%, the level is still high for comfort. This low headline ination is largely the eect of low food deation at 1.69%.Growth Surges:IIP growth for October 2018 came in at 8.1% vs. consensus estimate of 5.7% however, since Diwali fell in October last year and in November this year, there is a seasonal eect in play.

The cumulative growth for the period April-September 2018 stands at 5.6%.

PMI reading being above 50 indicates pickup in manufacturing activity over the coming months where growth in capital goods stands at 16.8%.

While the upcoming elections may be an overhang, we believe that the overall trend is positive.

With New RBI Governor comes new mandate:After Mr. Urjit Patel resigned citing personal reasons,

Mr. Shaktikanta Das has been appointed as the 25th RBI Governor. While the rest of the Monetary Policy Committee remains unchanged, change in leadership means a change in stance to "neutral" from "calibrated tightening" cannot be ruled out. Also the RBI is likely to focus on liquidity and resolving PSU bank issues.

We believe this indicates that the RBI may keep repo rates unchanged for a couple of quarters. While outlook for ination has softened (RBI projects 3.8-4.2% in H1 FY2019-20, but with a upward bias), with crude oil prices declining to USD 61 per barrel and food deating. However, a reversal in food deation is a risk to ination outlook, given that core ination is at ~5.7%; thus, the probability of cut in policy

Inflation fine print:Food and Beverages de-grew by 1.69% YoY during November 2018 where Vegetables and Pulses were the highest deators at 15.59% and 9.22% respectively.

Housing ination slightly cooled o by 5.99% vs. 6.55% previous month. Fuel and light continue to report the highest ination print at 7.39%,

however lower than the previous month reading of 8.55%. Under Miscellaneous, Health ination came in at 7.16% followed by Transport and Communication at 6.09%.IIP fine print:Manufacturing growth stood at 7.9% and electricity sector reported 10.8%. Mining grew at 7.0% during October 2018. Capital goods improved by 16.8%. Manufacture of furniture has reported the highest growth of 41.0% followed by 39.0% growth in manufacture of wood products (excl furniture). Manufacture of computer, electronic and optical products reported 30.2% growth. Automobile volumes improved by 11.6% YoY in October 2018 where commercial vehicle sales grew by 35.6% YoY.

 

Regards, E.R.Iyer