With inflation on track despite base revision, Crisil expects RBI rate cut

In January consumer price inflation (CPI) rose to 5.11 per cent from 4.28 per cent in December as per the new CPI series.

The December figure according to the old series was at 5 per cent. The Central Statistics Office (CSO) has revised the CPI series with a new price reference year (base year 2012 = 100) and a new weight reference year (2011-12).

In addition, the CSO has also introduced a number of methodological improvements that will make CPI a more accurate and less volatile measure of inflation. In addition, the new CPI gives greater weight to core categories than before.

"Despite the rise in inflation in January, inflation remains in the comfortable zone," Crisil said in a statement.

It said, "We expect RBI to deliver rate cuts in the range of 50-75 bps in the next fiscal.  We expect inflation to average at 6.5 per cent for this fiscal.  For 2015-16, we expect inflation to average at 5.8 pr cent supported by lower oil prices, normal monsoons, pro-active steps by the government and better monetary and fiscal coordination.

Industrial production growth slowed to 1.7 per cent in December from 3.9 per cent in November.

The slowdown was led by the mining and electricity sectors where average growth fell to 0.6 per cent from 6.8 per cent in the previous month. Manufacturing growth also slumped in December. With this, IIP growth in the fiscal so far stands 2.1 per cent, which is much below the 5.6 per cent industrial GDP (ex-construction) growth measured by the new GDP series, for the same period.

The existing IIP series therefore is now a poor representative of industrial GDP growth as the wedge between IIP growth and Industrial GDP growth has increased. For fiscal 2014, IIP growth was estimated at -0.1 per cent in contrast to industrial GDP at 5.3 per cent.

A similar pattern is expected to play out in fiscal 2015- IIP growth in the first three quarters of this fiscal is estimated at 2.1 per cent as against industrial GDP (ex- construction) growth of 5.6 per cent.