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January WPI inflation came in at 8.2% yoy, lower than the 8.4% yoy in December, the higher level was
mainly due to primary articles. This was higher than the consensus expectation of 8.1% yoy and our expectation
of 8.0% yoy. On a sequential basis, headline inflation ticked down 1.1% mom s.a. from the 2.2% mom rise in
December. The November headline number was revised up to 8.1% yoy from 7.5% yoy.
Pressure on core remains, mainly from a rise in non-food primary articles prices. Core inflation rose 0.9%
mom s.a., after a 0.2% mom increase in December. On a yoy basis, core inflation fell to 6.9% yoy from 7.6% yoy in
the previous month. Core is being driven by prices of non-food primary articles which grew 3% mom, s.a. as
compared to 1.4% mom, s.a. in December. This is on account of the high prices of fibres and minerals in January.
Non-food manufactured products declined to 0.3% mom, s.a. from 0.7% mom, s.a. in the previous month.
The January WPI numbers suggests inflation remaining high, after the large spike in December. Core prices
are still elevated, along with the known increase in primary articles. We have raised our FY12 inflation forecast to
6.7% from 6% previously due to recent upside surprises in agricultural prices, rising input and output price
expectations and higher global commodity prices. We think inflation will peak sequentially in 2Q2011 (see India:
When will inflation peak? Asia Economics Flash, February 9, 2011). The Reserve Bank of India (RBI) increased its
March 2011 WPI inflation forecast to 7%, from 5.5% in the last policy meeting, which is well above its comfort level.
It is noteworthy that core inflation has shown significant sequential increases in recent months, largely due to nonfood primary articles. Going forward, the trajectory of inflation will depend on primary articles, although high
inflationary expectations and rising commodity prices may continue to put upward pressure on prices.
We expect the RBI to hike policy rates by 25 bp in the March 17 policy meeting and by a cumulative 100 bp
in calendar year 2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
January WPI inflation came in at 8.2% yoy, lower than the 8.4% yoy in December, the higher level was
mainly due to primary articles. This was higher than the consensus expectation of 8.1% yoy and our expectation
of 8.0% yoy. On a sequential basis, headline inflation ticked down 1.1% mom s.a. from the 2.2% mom rise in
December. The November headline number was revised up to 8.1% yoy from 7.5% yoy.
Pressure on core remains, mainly from a rise in non-food primary articles prices. Core inflation rose 0.9%
mom s.a., after a 0.2% mom increase in December. On a yoy basis, core inflation fell to 6.9% yoy from 7.6% yoy in
the previous month. Core is being driven by prices of non-food primary articles which grew 3% mom, s.a. as
compared to 1.4% mom, s.a. in December. This is on account of the high prices of fibres and minerals in January.
Non-food manufactured products declined to 0.3% mom, s.a. from 0.7% mom, s.a. in the previous month.
The January WPI numbers suggests inflation remaining high, after the large spike in December. Core prices
are still elevated, along with the known increase in primary articles. We have raised our FY12 inflation forecast to
6.7% from 6% previously due to recent upside surprises in agricultural prices, rising input and output price
expectations and higher global commodity prices. We think inflation will peak sequentially in 2Q2011 (see India:
When will inflation peak? Asia Economics Flash, February 9, 2011). The Reserve Bank of India (RBI) increased its
March 2011 WPI inflation forecast to 7%, from 5.5% in the last policy meeting, which is well above its comfort level.
It is noteworthy that core inflation has shown significant sequential increases in recent months, largely due to nonfood primary articles. Going forward, the trajectory of inflation will depend on primary articles, although high
inflationary expectations and rising commodity prices may continue to put upward pressure on prices.
We expect the RBI to hike policy rates by 25 bp in the March 17 policy meeting and by a cumulative 100 bp
in calendar year 2011.
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