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May WPI inflation came in at 9.1% yoy, higher than the Bloomberg consensus and our expectation of 8.7% yoy. On a
sequential basis, headline inflation grew 0.5% mom s.a. from the 0.2% mom s.a. decline in April. The March headline
number was revised up to 9.7% yoy from 9% yoy, however, the revision was less in magnitude compared to earlier
months’ revisions.
Both the food and core prices rose significantly. Food inflation grew 1.2% mom s.a., from the 0.3% mom increase in
April. The Non-food Manufactured Inflation Index, the Reserve Bank of India’s (RBI) measure of core, grew 1.0% mom
s.a. against no change in the previous month. However, primary article and fuel inflation moderated in May.
The May WPI numbers suggest that pressure on headline inflation remains high despite the favorable base. The
increase in core inflation indicates that the pressure from demand remains elevated, despite some moderation in the
activity in May. With discussions on the pass-through of local fuel prices underway, we think inflation will remain a key
headwind for the economy in the near term. We expect an upward revision of headline inflation for May with the awaiting
administered fuel prices increase.
The May print and the March revision confirms another hike of 25 bp in the June 16 policy meeting, in our view.
We think the RBI will continue with its “anti-inflationary” stance in the remainder of 2011. We continue to believe that the
RBI will hike 75 bp in the remainder of 2011, including a 25-bp hike on June 16. We think that this print is negative for the
INR and we reiterate our 3, 6 and 12-month USD/INR targets at 46, 46.2 and 47 respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details:: �� ��
May WPI inflation came in at 9.1% yoy, higher than the Bloomberg consensus and our expectation of 8.7% yoy. On a
sequential basis, headline inflation grew 0.5% mom s.a. from the 0.2% mom s.a. decline in April. The March headline
number was revised up to 9.7% yoy from 9% yoy, however, the revision was less in magnitude compared to earlier
months’ revisions.
Both the food and core prices rose significantly. Food inflation grew 1.2% mom s.a., from the 0.3% mom increase in
April. The Non-food Manufactured Inflation Index, the Reserve Bank of India’s (RBI) measure of core, grew 1.0% mom
s.a. against no change in the previous month. However, primary article and fuel inflation moderated in May.
The May WPI numbers suggest that pressure on headline inflation remains high despite the favorable base. The
increase in core inflation indicates that the pressure from demand remains elevated, despite some moderation in the
activity in May. With discussions on the pass-through of local fuel prices underway, we think inflation will remain a key
headwind for the economy in the near term. We expect an upward revision of headline inflation for May with the awaiting
administered fuel prices increase.
The May print and the March revision confirms another hike of 25 bp in the June 16 policy meeting, in our view.
We think the RBI will continue with its “anti-inflationary” stance in the remainder of 2011. We continue to believe that the
RBI will hike 75 bp in the remainder of 2011, including a 25-bp hike on June 16. We think that this print is negative for the
INR and we reiterate our 3, 6 and 12-month USD/INR targets at 46, 46.2 and 47 respectively.
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