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YoY headline inflation declines due to food inflation base effect - core inflation ticks up a bit.
November headline year over year inflation in line with consensus expectations
India’s headline inflation per the wholesale price index (WPI) reached 7.48% year over year
in November, essentially in line with the Bloomberg consensus of 7.45%. As such, year over
year inflation declined from the 8.58% recorded in October. The decline was primarily driven
by the decline in food inflation (primary as well as manufactured products) to 6.11% from
9.97%, as core inflation (excluding food and fuel) ticked up a bit to 7.4% from 7.26%. Core
manufactured product inflation was 5.41%, up from 5.10% in the prior month.
No let up in price pressures though – yoy decline linked to the base effect
The mom change in the headline WPI of 42 basis points (bp) for November was essentially
unchanged from the 43 bp in October. As such, the year over year decline in food inflation was
linked to the base effect (food inflation spiked 4% mom in November 2009). The moderation
that was expected in food prices due to a good monsoon has not materialised due to an uptick
in manufactured food product prices (manufacture food product prices up 1.07% mom versus a
6 bp increase in primary food product prices). Separately, September’s year over year inflation
number was revised up to 8.93% from the earlier reported number of 8.62%.
Inflation pressures are not moderating
Though the market seems to have responded favourably to the release, we think that a
detailed analysis of the data suggest that inflation pressures (as suggested by the mom
increase) have not moderated, and that headline inflation will likely exceed the Reserve Bank
of India’s target of 5.5% in March 2011.
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