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Morning Briefing

Contrarion View: India Inflation not vanquished yet

INDIA INFLATION NOT VANQUISHED YET

10-Nov-14; Sep-14 CPI 6.46%

SUMMARY
Although there is a lot of optimism about Inflation generated by the fall in the CPI over the last few months and by the sharp decline in the Brent Crude prices, we think there is need for caution as both Brent and CPI could bounce back sharply in the coming months.

Brent Crude - Could bounce to $100+

Brent is seeing a sharp fall from 113 (Jun-14) and no bottom seems to be in sight. But, there is a very important Support in the 81.50-80.50 region on the Log chart, which suggests a bounce to 100+ is possible in 2015.

India CPI: By OECD and Government of India (Min. of Statistics)

The OECD publishes a longer time series on the Indian CPI, which suggests there is CPI might not fall below 6%. If Brent rises again, the CPI could also bounce back. RBI's Dy Gov HR Khan has said their model predicts 7% CPI by March 2016. We ourselves would be wary about seeing even 8%.

 
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