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India – Economics (Core inflation edges up):
The sharp deceleration in WPI inflation (to 7.5% YoY in November from 8.6% in October) was along expected lines and largely reflects the high base effect of last year. During November 2010, WPI Index rose 0.4% MoM vs. a 1.5% MoM rise in November 2009. RBI’s preferred measure of core inflation—WPI manufacturing ex food—picked up modestly in November to 5.4% YoY (from 5.1% in preceding two months) and remains above 5yr average of ~4%. Even sequentially, core inflation edged up in November with a 0.7% MoM rise (8% annualised) and 1.4% over the past three months (5.5% annualised) in seasonally adjusted terms. After having hiked rates at every scheduled meeting since March (cumulatively 150bps in Repo rate, 200bps in reverse repo rate), we expect RBI to be on a temporary pause in December but resume policy tightening in first quarter of next year. We expect RBI to increase policy rates by 50-75bps in 2011.
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