 "Food inflation might rise as agri commodity prices set to tick higher")
Experts forecast consumer price index (CPI) to range between 5.5 - 6% in short term i.e. until February 2016 which would moderate thereafter on correction in retail prices following rabi crops arrivals. With little room left for correction in the wholesale price index (WPI), sharp correction in CPI would narrow down the difference between the two mentioned price indices in the long term.
The biggest contributor to the spurt in November CPI was pulses which witnessed a staggering 39.9% price hike until November calendar year. Pulses inflation rose 46.1% in November.
Meanwhile, November WPI inflation print at (-) 2.0% masks a sharp uptick in primary food prices, especially of food grains, fruits and vegetables. The headline index increased 0.5% mom, up from 0.1% in October.
The prices of milk products remained subdued for over one year. But, a gradual recovery in their prices might begin with the onset of seasonal demand in January. Also, both fruits and vegetables prices might remain upbeat on crop damage due to unseasonal rainfalls and hailstorms in peak flowering seasons in October and November. Similarly edible oil prices in international markets are strengthening due to El-Nino impacting yields and high import dependence as well as lower local currency will keep edible oil prices elevated. Pulses, cereals, edible oils, milk products and vegetables are heavily weighed items in CPI.
While domestic agri commodities, especially food articles expected to remain costly, the overall inflation is expected to remain under the manageable limit of 6% as cited by the Reserve Bank of India (RBI) because of global oversupply of food articles. Bumper global cereal production along with huge carry overstocks of wheat and rice from the previous season may restrict agricultural commodities prices from sharp spike for sustained long period.
"As the favourable base effect of inflation wears thin and countercyclical fiscal moves induces inflation, we believe inflation to be slightly above RBI's comfort of 6%," said Dhananjay Sinha, Head, Institutional Research, Emkay Global Financial Services Ltd.
Inflationary pressures increased at both wholesale and retail level in November, however the pace of increase in prices at retail level was more pronounced as compared to deflationary trend at wholesale level. CPI increased to 5.4% year-on-year despite substantial correction in global commodity and food prices Overall food inflationary pressures increased and is likely to remain elevated with adverse weather conditions.
While the consumer price index (CPI) inflation print for November 2015 is modestly higher than expected, driven upwards by food inflation, it is not a cause for alarm. The buildup of CPI inflation upto November 2015 remains in line with the trend witnessed in November 2014. The expected reversal in prices of some perishables and pulses; the likely softness in global crude oil prices and, consequently, domestic fuel prices; as well as the waning of the adverse base effect would contribute to keeping CPI inflation largely steady at current levels during the remainder of FY 2015-16.
Normally, food prices moderate with the onset of rabi harvesting season. But, intermittent unseasonal rainfalls and affect of El Nino resulting into drought in some areas and flood in some major agri commodities growing regions, food prices remained elevated especially at retail level. In wholesale markets, however, food prices continued to remain stabilized with a marginal upward bias.
"We continue to expect CPI inflation to undershoot the January 2016 target of 5.8% that had been articulated by the RBI in its September 2015 policy statement," said Aditi Nayar, Senior Economist of credit rating agency ICRA.
"While the government has managed the food situation admirably so far, weather conditions have only gotten tougher. Addressing the supply shortage for pulses can potentially pull down the headline index by 0.8 percentage points, effectively bringing CPI within the RBIs March 2017 target of 5%," said Pranjul Bhandari, Chief India Economist, HSBC.
