JP Morgan: India: January inflation moderates but likely to be revised upwards

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India: January inflation moderates but likely to be revised upwards

January WPI inflation moderates to 8.2% oya from 8.4% the previous month but likely to be revised upwards like October and November November headline print revised upwards to 8.1 % from 7.5% oya; October inflation had previously been revised upwards 50bps Inflation rates for all three components of primary articles (food, non-food and minerals) continue to surge in January January inflation moderates but beware of revisions January WPI inflation moderated slightly to 8.2% oya (1.2 % m/m, sa) from 8.4%oya in December. However, this slight moderation should not bring much comfort because it was simultaneously revealed that November headline inflation was revised upwards 60 bps from 7.5 % to 8.1% oya. This is now the second successive month that headline inflation has been revised up by more than 50 bps. Recall, October inflation was revised upwards from 8.6 % to 9.1% oya. If this trend were to continue, January’s inflation is likely to eventually print closer to 9% than to 8% and the moderation observed in today’s print would be fleeting. The revision to October also meant that the monthly sequential momentum in each of the last four months in annualized terms is now running well into double digits Primary article prices surge again Just as in December, primary article prices continued to surge in January too (3.1 % m/m, sa). On a sequential basis, primary food inflation stayed high at 2.3 % m/m, sa on the back of a 6.3 % increase the previous month. While some of this can be attributed to high global food prices and occasional idiosyncratic supply shocks, month after month of high food inflation continues to reflect the underlying structural mismatch between domestic food demand and production. Non-food primary article inflation continued to surge on a sequential basis (3.9 % m/m, sa) and stay above 20% (23.9 % oya) on a year-on-year basis reflecting the fact that there has been no let up in global commodity prices. This was also manifested in surging mineral prices (11 % m/m, sa) but some of this is likely a payback to the sequential decline the previous month. Non-food manufacturing inflation abates, for now It will come as a relief to policymakers that non-food manufacturing inflation (used as a proxy for core inflation by authorities) abated in January to 4.8 % oya (0.3 % m/m, sa) from 5.3 % oya the previous month. This was surprising on light of (1) anecdotal evidence of prices increase of key manufactured items in January, as well as (2) high-frequency indicators such as the manufacturing PMI showing a sharp increase in output prices in response to ever-compressing margins. It is possible therefore, as in months past, that these prices will be revised upwards. The same was true of the November revisions released today. While the bulk of the revisions for November related to primary goods, non-food manufacturing prices were also upwardly revised such that the monthly momentum of non-food manufacturing rose by almost 30 bps from 0.55 % to 0.8% m/m, sa in November. Before we take solace from the fact that this momentum has fallen sharply in December and January, remember that these revisions are still awaited!