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MOSL: ECOSCOPE-CPI inflation exceeds expectation; IIP continues declining-Rate cut in next policy meeting unlikely

ECOSCOPE: CPI inflation exceeds expectation; IIP continues declining

** CPI-based retail inflation shot up to a 40-month high of 5.5% in Nov'19 from 4.6% a month ago. The number was in line with both our estimate and consensus of 5.3%.

** Food inflation accelerated to almost six-year high at 10% in Nov'19 (our estimate: 9%) from 7.8% in the previous month, driven by 'cereals and products, 'pulses and products', 'milk and products', 'oil and fats,' and 'vegetables.' Note that vegetable inflation too inched up to almost six-year high of 36% in Nov'19 v/s 26.1% a month ago.

** Among the non-food category, while 'fuel and light' continued exhibiting deflationary trends, inflation in 'pan, tobacco and intoxicants', 'housing' and 'clothing and footwear' decelerated in Nov'19.

** As expected, core inflation (all items excluding 'food & beverages', 'pan, tobacco & intoxicants' and 'fuel & light') reversed trajectory and inched up to 3.7% YoY in Nov'19 from 3.3% a month ago, exactly in line with our expectation. Please note that we estimate core CPI using exclusion method (headline CPI ex food & beverages, pan, tobacco and intoxicants, and fuel and light). However, if one uses the addition method (housing, clothing & footwear and miscellaneous), core inflation has remained unchanged at 3.5%. This is totally surprising and unwarranted.

** Index of Industrial Production (IIP) declined for the third consecutive month by 3.8% in Oct'19. The decline was slower than our estimate of 4.7% and consensus of 5.0%. Notably, IIP growth for Jun'19 has been revised to 4.9% from 4.6% earlier. The decline in IIP in Oct'19 was contributed by all its major components. Within use-based categories, record-high growth in intermediate goods production offset the decline in capital goods production and infrastructure/construction activities.