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INDIA INFLATION – Another
rate hike?
September’s WPI inflation at 9.7% YoY was in line
with market expectations and a shade lower than the
August outcome of 9.8%. Still, it remained perilously
close to the 10% mark. July’s headline inflation was
revised upwards to 9.4% from 9.2% and core (nonfood
manufactured goods) inflation was revised up
slightly 0.1ppt to 7.6%. The magnitude of revisions
in the last couple of months has been much lower
than the 0.5-1ppt for the prior several months.
Food (composite) inflation was 8.8% YoY, lower than
9.1% in August. Core inflation in September edged
lower to 7.6% YoY from 7.7% in August but
remained elevated and is still above RBI’s comfort
level. Sequentially, WPI gained 0.7% MoM (sa) in
September while WPI-core rose 0.4%MoM (sa).
Core inflation remains uncomfortably high and there
is still the troubling issue of dealing with
“suppressed” inflation, such as the delayed revisions
to local fuel prices and electricity tariffs, which in
turn could push up core inflation even if aggregate
demand is softening.
Headline WPI inflation remains above RBI’s comfort
zone even as the growth momentum is softening (see
Infofax Deceleration broadening, October 13). RBI
has hiked policy rates by 500bp since early 2010, but,
as we have repeatedly argued, rate hikes alone cannot
neutralise the multi-headed inflation dragon. This is
because inflationary pressures are a complex mix of
demand- and-supply side factors and are structural
and cyclical in nature.
In absence of any meaningful action by the
government the RBI has had little choice but to hike
rates by more than it would have if the government
had come through with some complementary
measures on the fiscal front. RBI’s body language
appears to suggest that it will likely hike on 25
October, despite the ongoing deceleration in growth
that will prompt it to cut its GDP growth forecast of
8% for FY12 (CLSA: 7.3%). Still, a pause cannot be
totally ruled out, especially in light of the
deteriorating global backdrop and the increased
downside risk to India’s FY13 growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIA INFLATION – Another
rate hike?
September’s WPI inflation at 9.7% YoY was in line
with market expectations and a shade lower than the
August outcome of 9.8%. Still, it remained perilously
close to the 10% mark. July’s headline inflation was
revised upwards to 9.4% from 9.2% and core (nonfood
manufactured goods) inflation was revised up
slightly 0.1ppt to 7.6%. The magnitude of revisions
in the last couple of months has been much lower
than the 0.5-1ppt for the prior several months.
Food (composite) inflation was 8.8% YoY, lower than
9.1% in August. Core inflation in September edged
lower to 7.6% YoY from 7.7% in August but
remained elevated and is still above RBI’s comfort
level. Sequentially, WPI gained 0.7% MoM (sa) in
September while WPI-core rose 0.4%MoM (sa).
Core inflation remains uncomfortably high and there
is still the troubling issue of dealing with
“suppressed” inflation, such as the delayed revisions
to local fuel prices and electricity tariffs, which in
turn could push up core inflation even if aggregate
demand is softening.
Headline WPI inflation remains above RBI’s comfort
zone even as the growth momentum is softening (see
Infofax Deceleration broadening, October 13). RBI
has hiked policy rates by 500bp since early 2010, but,
as we have repeatedly argued, rate hikes alone cannot
neutralise the multi-headed inflation dragon. This is
because inflationary pressures are a complex mix of
demand- and-supply side factors and are structural
and cyclical in nature.
In absence of any meaningful action by the
government the RBI has had little choice but to hike
rates by more than it would have if the government
had come through with some complementary
measures on the fiscal front. RBI’s body language
appears to suggest that it will likely hike on 25
October, despite the ongoing deceleration in growth
that will prompt it to cut its GDP growth forecast of
8% for FY12 (CLSA: 7.3%). Still, a pause cannot be
totally ruled out, especially in light of the
deteriorating global backdrop and the increased
downside risk to India’s FY13 growth.
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