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MOSL: ECOSCOPE-CPI inflation cools off; IIP at six-month high; Rate cut unlikely next month

ECOSCOPE: CPI inflation cools off; IIP at six-month high

** CPI-based retail inflation cooled off to 6.6% in Feb'20 (v/s 7.6% in Jan'20) after trending higher for six months. The number was marginally lower than consensus of 6.7% but higher than our estimate of 6.3%.

** As expected, food inflation continued moderating in the month. CPI inflation in food came in at 10.8% in Feb'20 (v/s 13.6% in Jan'20), largely in line with our estimate of 10.3%. Within food, vegetables - the main factor driving inflation higher - inflation eased to 31.6% in Feb'20 from 50.0% a month ago.

** Worryingly though, inflation in non-food items inched up in Feb'20. Inflation in 'pan, tobacco and intoxicants' and 'fuel and light' and 'clothing and footwear' moved higher, while that in 'housing' remained flat. Thus, inflation excluding food was up marginally to 4.0% in Feb'20 from 3.9% in Jan'20. Core inflation came in at 4.1% v/s 4.2% in Jan'20.

** Index of Industrial Production (IIP) rose 2.0% YoY in Jan'20 versus +0.1% YoY a month ago and +1.6% YoY in Jan'19. The number is higher than our estimate of 1.3% and consensus of 0.5%. The rise in industrial production was entirely attributable to higher manufacturing activity. According to the use-based classification, production of intermediate goods drove better IIP growth, while capital goods production continued declining, albeit at a slower rate.

** Although inflation moderated in Feb'20, CPI inflation is likely to remain more than 5% till Oct'20, partly due to (a) base effect and (b) elevated inflation in non-food items. As industrial production too rose faster in Jan'20, the combination of moderating inflation and better growth imply that the RBI may not cut policy rates next month in its first monetary policy meeting for FY21.