Making Sense

As I have been writing in the past few posts, the trajectory of inflation is lower.  If you think about it, Inflation is nothing but percentage change in prices paid over the prior period. With the disruption caused in prices of energy and other commodities post Russia - Ukraine War and subsequent sharp declines, the base effect helps bring the headline print lower. For the month of April, the headline CPI rose 4.76% yoy while the core CPI which had been sticky around the 6% declined to 5.20% yoy. Both the numbers bring much needed comfort to the RBI. Sequentially, fuel and lighting declined mom while all other categories showed mom increases. With the April month's release, CPI inflation is projected to come in at 3.93% for March 2024 and remain closer to the 4% level for FY 25. My own estimates are lower than RBI projections of 5.20% by Q4 FY 24. My estimates call for a average inflation reading of 4.42% for FY 24.  If RBI inflation numbers evolve as per guidance, then ...

WPI inflation peaked appears to have peaked in May - June 2022 from highs of 16.68% to most recently released figure of 4.95%. This is the lowest print since March 2021. The decline was broad based but the primary articles saw a mom decline of 2.98% followed by fuel and power at -1% and the manufactured products basket falling 0.28% mom. On a yoy basis, fuel and power which has a weight of 13.2% in the WPI basket is up 18% yoy.  The recent decline in WPI confirms the goods disinflation narrative while the stickiness of the core persists (earlier  CPI ) While OIS continues to respect the range established earlier: 1Y OIS Range 6.55% - 6.75%, level 6.69% 5Y OIS Range 6.15/20% - 6.50%, level 6.25% 1x5 OIS spread has widened to - 44 bps from early dec lows of 43 bps.