High Inflation here to stay

Inflation remains stubborn
Inflation for the week ended April 26 stood at 7.61% Y-o-Y; marginally below MatrixCap
and consensus estimate of 7.65% and slightly above the previous week’s number of
7.57%.This rise is primarily on account of rising food prices and partly on account of base
effect.

Food articles fueling prices
A 22bps rise in primary articles inflation came in on account of rise in both, food and nonfood articles inflation. High prices of certain beverages, fruits and vegetables and condiments and spices triggered the rise in food articles inflation. Manufactured products inflation and fuel group inflation remained unchanged.

Policy measures to combat inflation
The government and the RBI have already adopted several fiscal and monetary measures to rein in rising domestic prices. The Government has imposed several restrictions on exports and sharp reduction in import duties of several items. During April, the RBI announced a total of 75 bps hike in CRR primarily to arrest higher inflationary expectations
and to absorb excess liquidity of ~280 bn. The ministry has been explicit to mention that they may adopt further fiscal and administrative steps to curb inflation, if required. Some of the relatively recent measures are as follows:

India’s Forward Markets Commission has suspended futures trading in four commodities; soybean oil, rubber, chickpeas and potatoes for four months. The four commodities banned have a daily traded value of about INR12bn on the Multi Commodity Exchange of India Ltd. (MCX) and the National Commodities & Derivatives Exchange Ltd (NCDEX).
The import duty on edible oils, maize, pig iron and some steel products has been scrapped. Earlier during March-April, ban was imposed on exports of rice, pulses and cement.
The government is having continuous discussions with various industries (eg, steel, cement) to explore possibilities of price reductions. Some of the major steel producing companies have already reduced their prices.

Outlook
With the wearing off of base effects and skyrocketing global commodities (including food, metals and energy) prices, inflationary pressures will remain strong in the near term. In our view, even by a conservative estimate, inflation will hover at least around 8% in mid-june

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