WPI Inflation Decelerates Below 5%, Lowest in 41 Months

The provisional headline inflation rate (Wholesale Price Index, WPI) decelerated to 4.89% YoY in April 2013 vs. 5.96% YoY in March 2013. This is the first time since Nov 2009 that WPI inflation has decelerated below 5%. The seasonally adjusted WPI index declined by 0.3% MoM in April (vs. decline of 0.5% MoM in March based on provisional data). The headline inflation in April was below consensus expectations of 5.45%. The deceleration in headline inflation was mainly due to a high base effect, deceleration in food prices (mainly vegetable prices) and lower global commodity prices.

The final inflation for February 2013 was revised up to 7.28% compared to the provisional release of 6.84%. Food inflation (primary and manufactured) was revised to 11.5% in Feb vs. 10.9% reported earlier. Core WPI (non food manufactured) inflation was revised to 4.0% from 3.8% reported earlier.

Non-food manufactured inflation that the Central Bank monitors decelerated further to 2.8% YoY in April (lowest since Jan-2010) from 3.5% in March and the peak of 8.5% in March 2011. The seasonally adjusted sequential momentum also shows deceleration in core WPI inflation. We believe the deceleration in core WPI inflation reflects the moderation in global commodity prices in INR terms (CRB commodity index and Brent in INR terms declined by 0.9% and 5.8%, respectively, in April).

Fuel inflation decelerated to 8.8%YoY in Apr vs. 10.2%YoY in Mar. The fuel index declined by 0.7%MoM due to lower prices of ATF (6%MoM), petrol and furnace oil (2% each), LPG (1%). However, the price of bitumen rose (1%).