India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIA INFLATION – Elevated
outcome warrants a rate hike
Headline WPI inflation remained elevated at 9.4%
YoY in June, marginally better than expectations but
not meaningful enough to warrant any celebration on
the inflation front. More worryingly, April WPI
inflation was revised significantly higher to 9.7%
from 8.7% reported previously. The magnitude of
revisions so far in 2011 has averaged around 1ppt,
much higher than the 0.3-0.5ppt that is more typical
when inflation is showing a rising trend. Also, the
more complete impact of the fuel price hike will be
captured in the July monthly WPI data.
On a seasonally adjusted basis, WPI in June rose
0.8% MoM (May: 0.2%), with non-food
manufactured goods (core) sub-index rising 0.4%
(May: 0.6%). WPI-core inflation for April was
revised up to 7% (from 6.3%), but was still slightly
encouraging as it remained well below the 8.5% in
March. At 7.2% YoY, WPI-core inflation in June
was similar to 7.3% in the prior month. However,
the data for May and June are preliminary and will
be revised higher but unlikely to a level near the
peak of 8.5% in March.
The food composite index rose 8.4% YoY in June,
higher than the 8% in the prior month. Most likely,
headline food composite inflation will rise further, as
last year’s base effect becomes less flattering. Also,
the ongoing monsoon season will be important for
the outlook of food inflation as well.
The latest inflation will offer no cheer to the RBI, and
it will have little choice but to hike the repo rate by
25bp to 7.75% at its quarterly review on 26 July. It
will remain focussed on inflation and be less
perturbed by the ongoing moderation in growth.
However, the RBI will reiterate the risk of external
factors on the growth outlook. Following the rate
hike later this month, we expect the RBI to hike again
25bp to 8% on the repo rate by the end of the current
quarter before pausing. Commodity prices and
possible global financial dislocation are also key
inputs but the timing of that rate hike is less certain
due to a possible change of guard at the RBI. The
current governor’s term ends in early September but
it is not yet clear if he will get an extension.
No comments:
Post a Comment