Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India
Inflation untamed: WPI inflation jumps in March
India's March WPI headline inflation jumped to 9% y-o-y (vs. 8.3% in February), well-above expectations. While food
inflation eased, energy prices rose and core inflation continued to trend up in response to demand-led price pressures.
Inflation is proving difficult to tame and continued RBI tightening is needed, with the next rate hike coming at the May
meeting.
Facts
WPI inflation jumped in March to 9% y-o-y (vs. 8.3% y-o-y in February), which was above consensus (8.4%) and our higher
forecast (8.5%). Monthly sequential inflation rose to 1.1% m/m sa (vs. 0.9% in February), but it eased a bit on a 3m/3m SAAR
basis to 14.9% (vs. 15.1 percent in February) according to our estimates.
Core inflation (non-food manufacturing) rose again (7.1% y-o-y vs. 6% y-o-y in February) and the increase was broad based.
Monthly sequential core inflation eased on a m/m sa basis (1.0% vs. 1.5% in February), but was up on a 3m/3m SAAR basis
(10.2% vs. 9.1% in February).
Primary food inflation slowed to 9.5% y-o-y (vs. 10.6% in February). Non-food primary inflation also eased (25.9% y-o-y vs.
29.8% y-o-y in February) as did mineral inflation (12.2% y-o-y vs. 16.8% in February). However, energy prices rose to 12.9%
y-o-y (vs. 11.5% in February).
Implications
It is evident that inflation is not going to decelerate as fast as policy makers were hoping for and we certainly stick to our
above-consensus WPI inflation forecast of 8.3% y-o-y for FY2012, which will leave inflation well-above RBI's comfort zone.
While food and other primary inflation readings are coming down, it is certainly not as fast as expected. Also, keep in mind
that the annual inflation readings we are seeing at the moment for food are somewhat understated because we last year at the
same time had a very high base due to the dry 2009 monsoons. In addition, March's reading also saw international commodity
prices adding more to cost pressures, which will eventually have a second-order impact on inflation through higher wages and
general cost pass-through. Finally, and importantly, the excess demand and associated demand-led pressures on inflation is
now clearly manifesting themselves in rising core inflation.
This spells more tightening by the RBI and the next move will be at the May monetary policy meeting. With inflation numbers
of this magnitude, especially core inflation, RBI may feel compelled to be a bit more aggressive next time around and move by
50bps. With the growth momentum holding up (judging from recent PMI and credit growth numbers) and monetary policy still
accommodative (i.e. rates below neutral), there is room to do this without jeopardizing growth. Also, inflation is driven up by
core pressures and not supply side factors, which also provides more scope to move more aggressively.
Bottom line: Difficult to tame inflation needs to be addressed through further rate hikes and the RBI may finally feel
compelled to move more aggressively at May's monetary policy meeting.
Leif Lybecker Eskesen, Chief Economist for India & ASEAN
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India
Inflation untamed: WPI inflation jumps in March
India's March WPI headline inflation jumped to 9% y-o-y (vs. 8.3% in February), well-above expectations. While food
inflation eased, energy prices rose and core inflation continued to trend up in response to demand-led price pressures.
Inflation is proving difficult to tame and continued RBI tightening is needed, with the next rate hike coming at the May
meeting.
Facts
WPI inflation jumped in March to 9% y-o-y (vs. 8.3% y-o-y in February), which was above consensus (8.4%) and our higher
forecast (8.5%). Monthly sequential inflation rose to 1.1% m/m sa (vs. 0.9% in February), but it eased a bit on a 3m/3m SAAR
basis to 14.9% (vs. 15.1 percent in February) according to our estimates.
Core inflation (non-food manufacturing) rose again (7.1% y-o-y vs. 6% y-o-y in February) and the increase was broad based.
Monthly sequential core inflation eased on a m/m sa basis (1.0% vs. 1.5% in February), but was up on a 3m/3m SAAR basis
(10.2% vs. 9.1% in February).
Primary food inflation slowed to 9.5% y-o-y (vs. 10.6% in February). Non-food primary inflation also eased (25.9% y-o-y vs.
29.8% y-o-y in February) as did mineral inflation (12.2% y-o-y vs. 16.8% in February). However, energy prices rose to 12.9%
y-o-y (vs. 11.5% in February).
Implications
It is evident that inflation is not going to decelerate as fast as policy makers were hoping for and we certainly stick to our
above-consensus WPI inflation forecast of 8.3% y-o-y for FY2012, which will leave inflation well-above RBI's comfort zone.
While food and other primary inflation readings are coming down, it is certainly not as fast as expected. Also, keep in mind
that the annual inflation readings we are seeing at the moment for food are somewhat understated because we last year at the
same time had a very high base due to the dry 2009 monsoons. In addition, March's reading also saw international commodity
prices adding more to cost pressures, which will eventually have a second-order impact on inflation through higher wages and
general cost pass-through. Finally, and importantly, the excess demand and associated demand-led pressures on inflation is
now clearly manifesting themselves in rising core inflation.
This spells more tightening by the RBI and the next move will be at the May monetary policy meeting. With inflation numbers
of this magnitude, especially core inflation, RBI may feel compelled to be a bit more aggressive next time around and move by
50bps. With the growth momentum holding up (judging from recent PMI and credit growth numbers) and monetary policy still
accommodative (i.e. rates below neutral), there is room to do this without jeopardizing growth. Also, inflation is driven up by
core pressures and not supply side factors, which also provides more scope to move more aggressively.
Bottom line: Difficult to tame inflation needs to be addressed through further rate hikes and the RBI may finally feel
compelled to move more aggressively at May's monetary policy meeting.
Leif Lybecker Eskesen, Chief Economist for India & ASEAN
No comments:
Post a Comment