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WPI inflation for August 2011 rises to 9.78%
Wholesale price-based inflation for August 2011 rose to 9.78%, the highest in the last 13
months, from 9.22% in July 2011. Headline inflation has stubbornly remained above the
9% mark for nine consecutive months now and the latest reading was above the median
forecast (9.64%) of Bloomberg’s survey of economists. Core (non-food manufacturing)
inflation – which the RBI tracks closely – rose at a faster pace of 7.8% as compared to 7.5%
in July 2011. Inflation for June 2011 was revised marginally upwards by 7bp to 9.51%.
Primary articles inflation rose (to 12.6%) from its 21-month low (of 11.3%) hit in July 2011.
The rise was driven by higher prices of food (up from 8.2% in July to 9.6%) and non-food
articles (rose from 15.5% in July to 17.8%). Inflation for minerals though continued to be
high (at 23.4%), slipped to its lowest level in the past five months. Fuel and power inflation
also inched up to 12.8% from 12.0% in July 2011.
Manufactured products, which have a weightage of ~65% in the overall WPI inflation, rose
at almost the highest level in the last three years (at 7.8% vs. 7.5% in July 2011).
Manufacturing articles inflation was driven by costlier metal and metal products, chemicals
and food products. The spread between primary articles and manufactured products
inflation, which was as high as 13.1% in January 2011, remained lower at 4.8%.
The latest inflation reading was concerning due to a) further acceleration in manufactured
products inflation (now ruling at highest levels in almost three years), b) pickup in primary
articles inflation driven by uptick in non-food articles inflation (rose by a steep 36.2% on
mom annualised basis) and c) core inflation rising further to 7.8%.
However, the rise in headline inflation can be partly attributed to unfavourable base effect
– headline inflation had eased off from 10.0% in July 2010 to 8.9% in August 2010.
Going forward, we expect inflation to moderate on account of a) steady to falling global
commodity and energy prices on the back of weaker global growth, sovereign debt crisis
concerns in Eurozone countries and concerns of a double-dip recession in the US and b)
reduction in demand side inflationary pressures due to impact of higher interest rates.
Though the latest headline inflation reading may prompt the RBI to hike rates again in its
forthcoming monetary policy review, we do not expect the Central Bank to hike the repo
rate by more than 25bp. The expected moderation in inflation over the next few months,
more visible signs of slowdown on the domestic growth front and heightened global macro
environment are expected to lead to an end to the current tightening stance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
WPI inflation for August 2011 rises to 9.78%
Wholesale price-based inflation for August 2011 rose to 9.78%, the highest in the last 13
months, from 9.22% in July 2011. Headline inflation has stubbornly remained above the
9% mark for nine consecutive months now and the latest reading was above the median
forecast (9.64%) of Bloomberg’s survey of economists. Core (non-food manufacturing)
inflation – which the RBI tracks closely – rose at a faster pace of 7.8% as compared to 7.5%
in July 2011. Inflation for June 2011 was revised marginally upwards by 7bp to 9.51%.
Primary articles inflation rose (to 12.6%) from its 21-month low (of 11.3%) hit in July 2011.
The rise was driven by higher prices of food (up from 8.2% in July to 9.6%) and non-food
articles (rose from 15.5% in July to 17.8%). Inflation for minerals though continued to be
high (at 23.4%), slipped to its lowest level in the past five months. Fuel and power inflation
also inched up to 12.8% from 12.0% in July 2011.
Manufactured products, which have a weightage of ~65% in the overall WPI inflation, rose
at almost the highest level in the last three years (at 7.8% vs. 7.5% in July 2011).
Manufacturing articles inflation was driven by costlier metal and metal products, chemicals
and food products. The spread between primary articles and manufactured products
inflation, which was as high as 13.1% in January 2011, remained lower at 4.8%.
The latest inflation reading was concerning due to a) further acceleration in manufactured
products inflation (now ruling at highest levels in almost three years), b) pickup in primary
articles inflation driven by uptick in non-food articles inflation (rose by a steep 36.2% on
mom annualised basis) and c) core inflation rising further to 7.8%.
However, the rise in headline inflation can be partly attributed to unfavourable base effect
– headline inflation had eased off from 10.0% in July 2010 to 8.9% in August 2010.
Going forward, we expect inflation to moderate on account of a) steady to falling global
commodity and energy prices on the back of weaker global growth, sovereign debt crisis
concerns in Eurozone countries and concerns of a double-dip recession in the US and b)
reduction in demand side inflationary pressures due to impact of higher interest rates.
Though the latest headline inflation reading may prompt the RBI to hike rates again in its
forthcoming monetary policy review, we do not expect the Central Bank to hike the repo
rate by more than 25bp. The expected moderation in inflation over the next few months,
more visible signs of slowdown on the domestic growth front and heightened global macro
environment are expected to lead to an end to the current tightening stance.
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