Contact Your Financial Adviser Money Making MC
8 September 2016
 |
| S.B.I (The Total Investment & Insurance Solutions) |
The
inflation based on Consumer Price Index (CPI) would fall below 4% in December
2016 and at least four-five readings in FY2017 would be sub 4.5%, says a
report.
In
the Ecowrap research note, State Bank of India (SBI), says, there are several
reasons for the decline in inflation trajectory. "First, pulse prices are
on a declining trajectory, and from historical data it can be inferred that
there is a clear downside of at least 60 basis points to headline CPI numbers
over the medium term as pulse prices start to mean revert. This alone will pull
down CPI to sub-4.5%. Second, the distribution of core CPI over the last 20
months indicates a nicely shaped Bell curve, with mean CPI at 4.5%," it
added. The Total Investment & Insurance
Solutions
 |
CPI Inflation (The Total Investment & Insurance
Solutions)
Another
point is steps announced in the Budget to increase agricultural productivity
through better irrigation, insurance and other mechanisms. The Ecowrap feels
that this could drive down food prices structurally over the long run. The Total Investment & Insurance Solutions
"In
this context," the report says, "we recently did a study to
understand the dynamics of behaviour of inter-sectoral prices in case of India.
Our results showed that agricultural prices and manufacturing prices are now
being determined by separate forces, while the first is guided by minimum
support prices the second is primarily driven by changes in productivity and
wage structure in India. For example, our research showed that labour
productivity, estimated as the per capita manufacturing real GDP at constant
prices, is exhibiting upward trend and sharp changes has taken place in labour
productivity since late 1990’s."
Because
of this productivity increase, manufacturing WPI had declined from a high of
12.3% in FY1995 to as low as 2.4% in FY2006. In fact, manufacturing prices
consistently used to be lower in 2000 and the average manufacturing was less
than 4% in those years, just before the crisis. The Total Investment & Insurance Solutions
Lastly,
the projection of ‘above-normal’ monsoon for the current year will boost
agricultural production in the country, which will subsequently impact the food
inflation in downward direction, SBI Ecowrap says. The Total Investment & Insurance Solutions
According
to the report, one interesting fact that will also emerge in the coming months
is that the wholesale price index (WPI) will be greater than CPI. This has
happened previously during entire 2011, except in September that year, when WPI
was greater than CPI by average 60 bps. However, it says, this time the
difference will be not so significant and though WPI will be greater than CPI,
both will possibly move in tandem, sans any global volatility. This is
eminently good news given the fact that India recently adopted an inflation
targeting framework, the report says. The Total
Investment & Insurance Solutions
No comments:
Post a Comment