The inflation numbers were somewhat lost in the midst of economic survey, budget and political scenario. Having been surprisingly high in April, the CPI has clocked back to expected levels, with the PBS reporting May year-on-year inflation at 8.34 percent. No wonder that the government has, in the budget and the economic survey presentation, boasted of its achievements in keeping inflation well within single digit.
Yes, the improved reserves position and a stable currency have both contributed in keeping the CPI in check, for which the government deserves a pat on the back. In the previous few months, inflation has largely been dictated by food index in general and perishable food in particular. May was a relatively better month with perishable food prices getting back to normalcy--offering a much-needed breather.
The year-to-date inflation has averaged at 8.66 percent--and all signs point out towards government successfully achieving the year-end target and beating that of IMFs for full-year inflation. The single largest contributor in terms of impact on CPI is the housing, water and electricity sub-index, which was recently affected by a quarterly revision in house rent and earlier by the power tariff rationalisation.
While the macroeconomic stability and governments price control measures have had a role to play in keeping inflation where it is-a big note of thanks-owed to commodity prices, which have stayed flattish almost throughout the year. The good news is that global crude oil prices are tipped to slide even further on account of oversupply.
Little surprise, the bankers are queuing up for long-term papers and shying away from T-bills. The overall mood and expectations are for lower inflation in the near future, which reflects well on the longer term papers appetite.
The budget seems a mixed bag in terms of its inflationary nature.
There is a likelihood of some upward pressure on the CPI, as the retailers would now be charged with sales tax--which is eventually a pass-on item. What exactly would the quantum be, should soon be known, but in terms of commodity prices, the overall picture still favours single-digit inflation.
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May - 2014 CPI - Key items
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YoY (%) MoM (%)
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General 8.34 -0.26
Food & bev 6.78 -1.33
Non-persishable 7.06 -0.78
Perishable 5.22 -4.31
Clothing & footwear 11.58 1.12
"Housing, water, electricty, gas & fuels" 9.69 0.03
Transport 5.13 -0.30
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Source: PBS
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