India's inflation predicted to moderate to 5.8%

What will be the central bank's next move?

According to DBS, the softer than expected Jan CPI inflation release earlier this week has raised expectations that the WPI inflation numbers out today might surprise to the downside. DBS' estimate is for the headline to register 5.8% YoY, easing from 6.2% in Dec13.

Here's more:

Much of the downward pressure is likely to stem from the food price component, as vegetable prices pull back from the Oct-Nov13 peak on the winter crop arrivals and stepped up supplies.

The trajectory of the core WPI (non-food manufacturing used as proxy) will be watched closely after the core CPI reading proved sticky around the 8% mark despite 75bp rate hikes since Sep last year. In addition, despite the central bank signalling a shift to the retail inflation as a predominant indicator for policy guidance, the wholesale inflation trends might be watched to gauge ex-factory price pressures.

On policy direction, barring any commodity/ domestic price shocks in the horizon and assuming normal monsoon, CPI inflation could roughly move along the trajectory drawn up the RBI committee.