WPI inflation rises to 9.44% in June 2011-- Angel Broking,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��--


WPI inflation rises to 9.44% in June 2011
Wholesale price-based inflation for June 2011 rose to 9.44% from 9.06% in May 2011.
In spite of the high base effect (10.3% in June 2010), headline inflation continued to
remain above 9%. The latest headline inflation print was below the median (9.68%) of
Bloomberg’s survey of economists. Core (non-food manufacturing) inflation was flat at
7.3%. Inflation for April 2011 was revised upwards from 8.66% to 9.74%; with this revision
the headline inflation has persisted above the 9% mark for the last seven consequent
months.
Primary articles inflation rose after declining for the last four months. Driven by a sharp
rise in minerals (up 27.0% yoy vs. 11.9% yoy in May 2011), primary articles inflation
increased to 12.2% from 11.3% in May 2011. Fuel and power inflation rose from 12.3% in
May 2011 to 12.8% on the back of higher mineral oil prices. The full impact of the recent
diesel price hike is yet to be reflected in the numbers and will be felt in the July 2011
inflation print. Electricity inflation continued to show a negative tick for the second straight
month, hinting probably at a possibility of pending revision, in our view. Manufactured
products, which have a weightage of ~65% in the overall WPI inflation, continued to rise
at an accelerated pace (of 7.4%). Manufacturing articles inflation was driven by food
products (8.5%), chemicals (7.4%) and metals (8.9%).
The street is expecting the RBI to carry out one or two more hikes in its repo rate,
considering the elevated inflation numbers. However, we see cooling global commodity
prices, moderating food inflation, weakening domestic demand, slowing credit and higher
deposit mobilisation as signals that the economy is very close to the peak levels for both
inflation and broader interest rates.
Accordingly, although the RBI may still deem it necessary to hike the repo rate by another
25bp or so to anchor inflation expectations decisively; however, in our view, there is now
an increasingly distinct possibility that there may not be any more rate hikes from the
Central Bank. In case the RBI uses the relatively mild repo tool (as against the harsher CRR
hike), we do not expect banks to further increase broader deposit or lending rates.