India's April CPI inflation clocked yoy growth of 4.9% (a four-month low), in line with market expectations and lower than our estimate of 5.2% yoy. A closer look at the data, however, shows that the rise in food prices has yet to be factored in.
Data from the Price monitoring Cell (PMC) of the Department of Consumer Affairs, Government of India, shows that between 30 April 2015 and 11 May 2015, prices have gone up fairly quickly - an indication that the impact of crop loss due to unseasonal rainfall is finally feeding in.
Weakening currency and hardening global crude prices have further added to the woes. After two consecutive reductions in the retail prices of petrol and diesel in April, the government effected a fairly steep hike in early May, more than negating the effect of earlier price cuts.
Given that the combined effect of the increase in crude prices and the depreciation of the INR far exceeds the quantum of the recent retail price hike, one may expect another round of price hike once the prices are up for review on 15 May.
Falling oil prices were one of the important reasons for a sharp deceleration in inflation. However, with crude prices now up by nearly 40% since January, some of the earlier gains will be erased, given that India imports around 80% of its crude needs.
