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February WPI inflation came in at 8.3% yoy, significantly higher than consensus and our expectations of a
7.8% yoy increase. The increase was mainly due to a jump in core inflation. On a sequential basis, headline
inflation accelerated by 0.8% mom s.a. from the 0.1% mom rise in January. Worryingly, the December headline
number was revised up to 9.4% yoy from 8.4% yoy.
Moderation in food prices, but core inflation rose sharply. Non-food manufactured inflation, the Reserve Bank
of India’s (RBI) measure of core, rose significantly 1.6% mom s.a., after a 0.2% mom increase in January. On a
yoy basis, core jumped to 6.1% yoy from 4.8% yoy in the previous month. Food prices declined by 2% mom s.a.,
from the 1.3% mom increase in January, mainly due to a fall in prices of fruits and vegetables.
The February WPI number suggests that inflation is still on a rising trajectory despite the favorable base.
The increase in core inflation indicates that the pressure from demand remains elevated, and higher input prices
are seeping through. Going forward, we think inflation will likely peak in 2Q2011 (see India: When will inflation
peak? Asia Economics Flash, February 9, 2011), though the February high print poses risks to the upside on the
timing and the magnitude of the peak in inflation.
With the high print, we think a rate hike by the RBI is almost a certainty. We expect the RBI to hike both repo
and reverse repo rates by 25 bp in the March 17 meeting. Beyond that, we believe the RBI will hike policy rates by
another 50 bp in calendar year 2011
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
February WPI inflation came in at 8.3% yoy, significantly higher than consensus and our expectations of a
7.8% yoy increase. The increase was mainly due to a jump in core inflation. On a sequential basis, headline
inflation accelerated by 0.8% mom s.a. from the 0.1% mom rise in January. Worryingly, the December headline
number was revised up to 9.4% yoy from 8.4% yoy.
Moderation in food prices, but core inflation rose sharply. Non-food manufactured inflation, the Reserve Bank
of India’s (RBI) measure of core, rose significantly 1.6% mom s.a., after a 0.2% mom increase in January. On a
yoy basis, core jumped to 6.1% yoy from 4.8% yoy in the previous month. Food prices declined by 2% mom s.a.,
from the 1.3% mom increase in January, mainly due to a fall in prices of fruits and vegetables.
The February WPI number suggests that inflation is still on a rising trajectory despite the favorable base.
The increase in core inflation indicates that the pressure from demand remains elevated, and higher input prices
are seeping through. Going forward, we think inflation will likely peak in 2Q2011 (see India: When will inflation
peak? Asia Economics Flash, February 9, 2011), though the February high print poses risks to the upside on the
timing and the magnitude of the peak in inflation.
With the high print, we think a rate hike by the RBI is almost a certainty. We expect the RBI to hike both repo
and reverse repo rates by 25 bp in the March 17 meeting. Beyond that, we believe the RBI will hike policy rates by
another 50 bp in calendar year 2011
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