Indian inflation drops, ignores oil rally

Recent rally in oil prices failed to push inflation higher in India. This is a good news for the consumers, who have been ravaged by higher inflation for many years. Consumer price index (CPI) rose 4.9% on yearly basis in April compared to 5.4% rise in March according Central Statistics Office.

• Even though higher oil prices is yet to push inflation higher, Country remains very vulnerable to rising oil prices as India imports most of its energy needs.

Food prices rose at 5.1%. New government recent curb on popular food items might be doing the trick. However Food prices in India remains vulnerable to Monsoon, which is forecasted to be lower than average.

Impact -

• Impact of today's release is much lower, in spite of signs that inflation is falling further. Reserve Bank of India (RBI) would be extra cautious before providing any policy moves as crude oil prices in global market rose almost 15% this year and close to 30% from its recent low.

• RBI would keep increasing its coffer with dollar preparing for rate hike by US Federal Reserve. India's forex reserve reached all-time high around $351 billion. Rupee will remain under pressure as RBI remains dollar buyer in the market.

Recent bond market rout has hit India too, which has seen its 10 year benchmark yield rise to 7.76% in late April to 7.94% as of latest.