Stock Market

April CPI rises to 5.39%; IIP for March falls to 0.1%

Chillicious Team

Retail inflation, as measured by the consumer price index (CPI) for April, came in at 5.39 percent, while industrial output, measured by Index of Industrial Production (IIP) fell by 0.1 percent.

Retail inflation soared in April on higher food and fuel prices, reversing a downward
trend seen in recent months.

The annual rate of price rise, based on consumer price index, in the previous month stood at 4.83 percent, the lowest in six months.

As per a CNBC-TV18 poll, April CPI was expected at 5.05 percent and IIP at 2.52 percent for March. In March, CPI stood at 4.83 percent and IIP was at 2 percent.

Industrial production growth fell to 0.1 percent in March due to poor performance of manufacturing and mining sectors coupled with sharp decline in output of capital goods.

Anubhuti Sahay from Standard Chartered Bank said the numbers this time around are in stark contrast to what they were for preceding months.  Bank’s house view doesn’t pencil in a rate cut. If a rate cut does happen, it will be only in August, not in June, she said. Oil prices and monsoon are greater worries, she said.


Indranil Pan Chief Economist of IDFC said the food inflation got a nasty surprise from egg and fish components. Most other inflation numbers were within our expectations, he said. As the RBI continues to delay the cutting cycle, he isn’t sure what kind of a risk it will land up in. The CPI number could possibly be higher than RBI’s own expectations, which reduces a possibility of a cut.  


Siddhartha Sanyal of Barclays said numbers were surprising in the food inflation. Key question is whether the inflation in food prices could be because of the heat wave last month. He expects RBI to cut the key policy rate by 25 basis points. There may even be a higher rate cut, he said.


Shubhada Rao of Yes Bank said the bank was spot on about the CPI number. There could be a 25 bps rate cut going forward, she said.

April CPI highlights:

Food inflation at 6.32% Vs 5.21% (MoM)
Rural inflation at 6.09% Vs 5.7% (MoM)
Urban inflation at 4.68% Vs 3.95% (MoM)
Vegetable price inflation at 4.82% Vs 0.54% (MoM)
Combined fuel & light inflation at 3.03% Vs 3.38% (MoM)
Clothing, footwear inflation at 5.56% Vs 5.50% (MoM)
Cereals & products inflation at 2.43% Vs 2.43% (MoM)
Milk & products inflation at 3.32% Vs 3.33% (MoM)
Pulses & products price inflation at 34.13% Vs 34.15% (MoM)
Urban consumer housing inflation at 5.37% Vs 5.31% (MoM)

March IIP highlights:

Mining sector output at -0.1% Vs 5% (MoM)
Manufacturing sector output at -1.2% Vs 0.7% (MoM)
Electricity sector output at 11.3% Vs 9.6% (MoM)
Basic goods output at 4% Vs 5.4% (MoM)
Capital goods output at -15.4% Vs -9.8% (MoM)
Intermediate goods output at 3.7% Vs 5.7% (MoM)
Consumer goods output at 0.4% Vs 0.8% (MoM)
Consumer durables output at 8.7% Vs 9.7% (MoM)
Consumer non-durables output at -4.4% Vs -4.2% (MoM)


Below is the verbatim transcript of Indranil Pan and Siddhartha Sanyal\’s interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.

Latha: Reactions to the -1.2 percentage manufacturing?

Pan: I think surprising in terms of the downside that we have seen especially what Siddhartha also was rightly saying, but to a certain extent the electricity growth and the core had been sort of relatively outperform us in March compare to Feb, so we were expecting a sort of flattish manufacturing to provide the 2 percent that we were looking at but definitely a March number on the manufacturing going down is slightly surprising, but I don’t know how you read that along with probable 5.4 percent CPI numbers that you just were talking about.

Ekta: How would you read it because your IIP estimate was at the higher end of the estimate and -1.2 percent decline that we have seen which is coming from manufacturing?

Sanyal: Very surprising indeed and disappointing too.

Latha: First reaction from you?

Pan: I think definitely it is higher than our expectation so we were at 5.1 percent, but as you read out the numbers the surprise has come more from the meat, egg and fish. Most of the other numbers were in line with our expectations, so from the perspective of the RBI, I think they might be able to see through this so we will have to sort of see what the future numbers come out and that is where the direction for the RBI would lie.

Ekta: Have you managed to calculate the core CPI which has come in at this time around. I am sure it must be higher than the 4.8 percent that was envisaged by the market?

Pan: Unfortunately, I don’t have the core inflation number but what you just read out, to a certain extent the pressure is more on the food side. If anything the core would have risen it would have risen just by a few basis points that shouldn’t make too much of a difference.

Latha: So would this uptick in services inflation worry you, June 7 action?

Pan: Well in terms of the worry obviously we are not looking at the RBI suddenly sort of turning the rate cycle, no doubt about that. As Anubhuti right pointed out, I think what could be happening is that beyond the monsoons as the monsoons get better clarity and the reservoir levels get better clarity and food prices therefore we have a better clarity on that that is the point in time the RBI possibly would need to take a view. My only point is as the RBI continues to delay the rate cutting cycle I am not sure what type of global risk that it lands up into, you have the Brexit coming up so we don’t have any certainty there. You then land up into a situation where the markets tend to price in the US presidential elections and we don’t really have any certainty on that. Therefore to a certain extent this 5.3-5.4 percent is relatively higher than possibly RBI’s own expectation which basically reduces probability of any incremental 25 basis points in my opinion.

Ekta: What are you pencilling in post this number especially on 7 June and thereafter as well, factoring in that may be there could be a possible normal monsoon and may be a bit of softening on food inflation as well?

Sanyal: If we just take a quick view what we have seen in today’s numbers the big surprise of CPI on the upside, now one interesting factor here a large contribution or large part of the upside really came from the food prices. Now if you try to join the dot and we couldn’t anticipate this to go up to this extent, but having said that you would recall April 2016 was excessively warm April, so there was heat wave in many parts of the country and you can call it some kind of an aberration on the weather front.

The key question is whether the big upside in the food prices spurt and subsequently in case of overall CPI which we have seen in April is because of that and in that case there is a possibility of that normalising over the course of next few months, especially given there is a forecast of normal monsoon. In that case the picture looks a lot more benign if not then there is possibly a cause of concern. Having said that coming to the RBI rate action question we think there is very clearly a case for a 25 basis point cut over the course of the year.

I would not really be surprised if eventually we get to see a slightly higher amount of cut rather than seeing only 25 basis point, but given that there is a bit of upside in the current print and more importantly in April RBI had actually delivered easing which is much more than 25 basis point. Our sense is that risks are rising that the cut will be slightly more back loaded rather than seeing it in June itself.