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India’s August WPI inflation came in at 9.8% yoy, above the 9.2% yoy in July. This was slightly above the
Bloomberg consensus expectation of 9.6% yoy and a fraction above our expectation of 9.7% yoy. On a mom
basis, headline inflation increased by 0.8% mom; seasonally adjusted (s.a.), higher than the past monthly figures.
On a quarter-on-quarter; s.a. annualized basis, the August headline WPI inflation continues to fall and is at 5.7%
after having peaked earlier this year. The June headline number was revised up slightly to 9.5% yoy from 9.4%
yoy, the quantum of the upward revision being lower than in previous months.
Primary articles inflation continues to increase after having moderated in the previous month. Food
inflation also rose to 9.1% yoy from 8% yoy mostly on the back of fish and poultry. Fuel inflation also increased to
12.8% yoy from 12.0% yoy due to the lagged effects of the increase in administered fuel prices. Core inflation, as
measured by manufactured non-food inflation increased to 7.7% yoy from 7.5% yoy.
There is a fall in sequential numbers even as yoy numbers show inflation to be sticky. Headline numbers on
a qoq, s.a. annualized basis still show a fall in WPI inflation to 5.7% from 6% in July. Core inflation has also
declined to 4.3% qoq, s.a annualized from 4.5% qoq, s.a. annualized in the previous month, suggesting that
inflationary pressures felt at the start of 2011, have come off significantly since March 2011. Going forward, we
expect yoy headline inflation to slow to 6% by March 2012. The very small upward revision to the June number
relative to the large previous revisions also suggests that inflationary pressures are sequentially on the wane.
We maintain our stance of a pause by the Reserve Bank of India (RBI) on September 16. While the slightly
higher yoy inflation print increases the probability that the RBI may hike a final time, also partly due to inertia in
policy making, we continue to think there are strong reasons for a pause. The sequential slowdown in inflation, the
significant weakness in economic activity, the lags in monetary transmission suggesting the impact of recent
aggressive rate hikes to be felt in the future, the sharp deterioration in the global environment and the risks of
contagion, and the financial tightening already achieved by the fall in the equity market, much more than a small
rate hike, all suggest that the RBI may prefer to pause with the repo rate at an already elevated 8.00% (see
Reserve Bank of India policy preview—expect a pause, Asia Policy Watch, September 13, 2011). Next up, RBI
policy meeting on September 16.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India’s August WPI inflation came in at 9.8% yoy, above the 9.2% yoy in July. This was slightly above the
Bloomberg consensus expectation of 9.6% yoy and a fraction above our expectation of 9.7% yoy. On a mom
basis, headline inflation increased by 0.8% mom; seasonally adjusted (s.a.), higher than the past monthly figures.
On a quarter-on-quarter; s.a. annualized basis, the August headline WPI inflation continues to fall and is at 5.7%
after having peaked earlier this year. The June headline number was revised up slightly to 9.5% yoy from 9.4%
yoy, the quantum of the upward revision being lower than in previous months.
Primary articles inflation continues to increase after having moderated in the previous month. Food
inflation also rose to 9.1% yoy from 8% yoy mostly on the back of fish and poultry. Fuel inflation also increased to
12.8% yoy from 12.0% yoy due to the lagged effects of the increase in administered fuel prices. Core inflation, as
measured by manufactured non-food inflation increased to 7.7% yoy from 7.5% yoy.
There is a fall in sequential numbers even as yoy numbers show inflation to be sticky. Headline numbers on
a qoq, s.a. annualized basis still show a fall in WPI inflation to 5.7% from 6% in July. Core inflation has also
declined to 4.3% qoq, s.a annualized from 4.5% qoq, s.a. annualized in the previous month, suggesting that
inflationary pressures felt at the start of 2011, have come off significantly since March 2011. Going forward, we
expect yoy headline inflation to slow to 6% by March 2012. The very small upward revision to the June number
relative to the large previous revisions also suggests that inflationary pressures are sequentially on the wane.
We maintain our stance of a pause by the Reserve Bank of India (RBI) on September 16. While the slightly
higher yoy inflation print increases the probability that the RBI may hike a final time, also partly due to inertia in
policy making, we continue to think there are strong reasons for a pause. The sequential slowdown in inflation, the
significant weakness in economic activity, the lags in monetary transmission suggesting the impact of recent
aggressive rate hikes to be felt in the future, the sharp deterioration in the global environment and the risks of
contagion, and the financial tightening already achieved by the fall in the equity market, much more than a small
rate hike, all suggest that the RBI may prefer to pause with the repo rate at an already elevated 8.00% (see
Reserve Bank of India policy preview—expect a pause, Asia Policy Watch, September 13, 2011). Next up, RBI
policy meeting on September 16.
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