Samiran Chakraborty, Head of Research, Standard Chartered Bank expects both Consumer Price Index (CPI) and Wholesale Price Index (WPI) to inch up due to rising food prices on account of weather-related troubles (hailstorms in parts of Maharashtra and the risk of El Nino) and adverse base effects. He sees the March CPI at 8.25 percent and WPI to "breach 5 percent on the upside, moving towards about 5.2 percent". Going forward, he, however, expects the CPI to cool below 8 percent if there are no severe weather-related shocks.
Speaking to CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Chakraborty said that in today's data he will watch out for housing inflation, which has a significant chunk in the CPI. It came down to single digit for the first time in February.
"So, I would like to see whether that trend continues in March or not as it could indicate the trend for the future," he said.
He will also be looking at to what extent the effect of hailstorm is getting reflected in food prices.
Chakraborty said that core CPI is still an issue, adding that any moderation in numbers would provide comfort for future monetary easing, but at this point he does not see RBI lowering rates anytime soon "neither in June nor in the policy after that."
Below is the transcript of Samiran Chakraborty's interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy
Latha: What are your expectations on CPI and WPI as well?
A: This is a month when we are all anticipating that some of the weather related disturbance, the hailstorm effect will have impact on food prices and to that extent we expect both WPI and CPI to inch up higher. So on CPI I am looking at a print of about 8.25 percent and possibly WPI will breach 5 percent on the upside again moving towards about 5.2 percent. We have to also remember that for both these indices there are adverse base effects which are also going to push these numbers upwards.
Sonia: Some of your peers believe that at 8 percent the CPI number could be bottoming out. What is your view on the trajectory that we can expect going ahead?
A: There are two issues here, one is these kind of adverse weather related disturbances, both the hailstorm effects and now there is risk of the El Nino effecting the monsoon conditions. If these play out very negatively then possibly we can say that we have seen the bottom of CPI and from here on it will go up only.
But for the time being if we don't concentrate on these weather effects, the other important factor is the very odd base effect pattern which for some time will consistently push CPI down and then in the later part of the year push CPI up. So both these things will make forecasting CPI extremely difficult over the rest of the year.
My own sense is that we will probably see less than 8 percent prints again unless we have severe weather-related shocks.
Latha: What will you watch out for in today's number, will it be the core CPI at all and what is the expectation from the Reserve Bank of India for June and thereafter?
A: If you look at the February CPI print for the first time the housing inflation came down to single digits. So, I would like to see whether that trend continues in March or not, this is a significantly large component of the CPI which could have if there is a trend forming there then that could indicate something for the future as well. The other thing obviously is to what extent the hailstorm effect is getting reflected in food prices and definitely core CPI is an issue and any moderation in core CPI is going to give us some comfort on future monetary easing. But, at this point can't see RBI easing rates any time soon neither in June nor in the policy after that.
Latha: So extended pause, I mean you stay at 8 percent?
A: That's what we are calling for. Governor Raghuram Rajan in the calls post the policy has clearly indicated that he does not want to do a stop go easing which can lead to volatility in policy rates. So, in that sense we will be waiting for a more sustained drop in inflation before calling for monetary easing.
Sonia: Just wanted you views on Index of Industrial Production (IIP) number as well, it contracted by almost 2 percent year-over-year (YoY) in February, what could the trajectory be, do you expect as bad numbers in the due course of time as well?
A: Part of the IIP decline was because of very significantly negative capital goods component and we have seen in the past that this has been a kind of a bunched number. So, I am not going to really call for that kind of a trend going forward, probably the number will improve a bit. But, really we are splitting hair here, even if this number is improving it will be very close to being flat.
Latha: What are you making of the trade numbers, we did see that export fall given that number as well as the minus 2 percent IIP number, what is gross domestic product (GDP) looking like, are we in a 4 percent plus range for some quarters of FY15 current year?
A: Well it appears to be so, can't see a recovery coming very soon. We are not seeing the manufacturing side of the economy growing at all. Consumer demand still appears to be very limited and till the election related uncertainty is out of our way doesn't look like the investment side is going to recover as well and there is kind of a freeze on government spending and that is also having a toll on the GDP number. So, overall at least for the first quarter of FY15 it appears that it will be a sub five percent number as well. So, this very flat bottom where if the first quarter of FY15 is also a sub-5 percent number, it will be the ninth quarter of sub five percent growth that's creating a risk that there could be a slip this kind of stall speed for the economy which can create problems unless we bring back reforms very soon.
