After increasing since August 2013, inflation moderated to 6.2% in the month of December 2013. The primary articles inflation declined to 13.7% in December 2013 from 19.9% in the previous month. Most of this can be attributed to the moderation in vegetable prices (from 95.3% in November to 57.3% in December) mainly those of onions which declined from 190.3% to 39.6% in December. Fuel & Power also witnessed a marginal decline from 11.1% in November 2013 to 11% in December 2013. However, inflation for manufactured products remained steady at 2.6%.
Build up inflation rate in the financial year so far (April - December) stood at 5.4% as against 4.8% in the corresponding period last year. Most of this build up inflation has been contributed by primary articles (9.2%) and fuel & power (10.3%). However, build up inflation for manufactured products have declined to 2.2% as against 3.8% last year.
Monetary policy action
The easing of inflation for the month of December provides some relief to the RBI. With the CPI and WPI inflation coming in at a lower level in December 2013, RBI may contemplate a rate cut if the WPI and CPI figures continue to move downwards in the next two months. The expectation is that WPI and CPI inflation should remain in the range of 6.5-7% and 9-10% respectively in the next two months in the absence of any external shock.
The 10-year GSec yield should be range bound between 8.5-8.7% in the near term.
However, no change may be expected in RBI's stance in the January policy.
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