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MOSL: ECOSCOPE-Jun’19 CPI inflation in line with expectations, IIP weakens in May’19

ECOSCOPE: Jun’19 CPI inflation in line with expectations, IIP weakens in May’19; RBI likely to cut policy rate next month

 

• CPI-based retail inflation inched up marginally to an eight-month high of 3.2% in Jun'19 from 3.1% a month ago. The number was exactly in line with our estimate.
• Higher headline inflation can primarily be attributed to food, where inflation inched up to a 12-month high of 2.3% in Jun'19 driven by 'cereals and products' and 'pulses and products'. We note that inflation in 'cereals and products' inched up to 1.3% in Jun'19 from 1.2% a month ago, while that in 'pulses and products' rose to a 33-month high of 5.7% from 2.1% over the same period.
• Core inflation eased to 4.1% YoY in Jun'19 - the lowest level in 23 months. Inflation in 'core services' decelerated to a 13-month low of 5.4% in Jun'19 from 5.6% a month ago.
• Growth in Index of Industrial Production (IIP) weakened to 3.1% in May'19 (below our estimate of 3.9%) from a six-month high of 4.3% a month ago. The weakness in IIP was largely because of slower growth in the manufacturing and mining sector. Power sector growth, however, accelerated in the month.
• Although marginally higher in Jun'19, retail inflation remains subdued and well below 4%. This, along with subdued GDP growth, raises the possibility of a 25bp rate cut in the RBI's August monetary policy meeting, in our view. We expect inflation to cross 4% in Oct'19 and average 4.1% in FY20.