India CPI inflation likely at 5% in FY 15-16

India's wholesale price inflation (WPI) released today came in at -4.05% y/y. The inflation figure is the lowest level since June 1976. It was also the ninth consecutive month with a negative reading. Barclays says the WPI inflation may remain in negative territory for another few months. This is now the longest stretch of negative wholesale prices India has experienced since 1975, when WPI inflation was in negative territory for 12 months, between July 1975 and June 1976.

Coupled with continuous negative prints in WPI, analysts assume the recent drop in CPI inflation will assuage the inflationary concerns of the central bank. In its latest monetary policy statement in early August, the Reserve Bank of India (RBI) noted that risks to inflation are 'balanced' and the governor recently noted that the food price management has been good by the government. 

According to Barclays, "In that context, we think the lack of an increase in MSPs in mid-July for the summer crops will help keep food inflation better anchored, as MSPs become valid from October 2015 onwards. We forecast FY 15-16 average CPI inflation of 5%. We believe that the central bank is on course to deliver another 25bp repo rate cut in H2 2015, unless incoming data - for example, the monsoon - spring major negative surprises in the coming months.  The recent volatility in INR due to the recent weakening in CNY by the PBoC is likely to be a hurdle for an early delivery of the rate cut."