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WPI approaching RBI’s target zone…
Inflation for December 2011, as measured by the wholesale price index
(WPI), moderated sharply to 7.47% from 9.11% in November 2011 and
9.45% in December last year. It is the lowest reading in the last two
years. This was mainly on account of a sharp dip in primary articles
inflation to 3.07% YoY from 8.53% YoY in November 2011 due to a
seasonal decline in fruits and vegetable prices and a favourable high
base effect of December 2010 of 18.53% YoY creeping in. However, in
sequential terms, headline inflation (MoM) remained flat as the decline
in primary articles inflation of 1.56% was offset by a stable rise of 0.58%
in fuel inflation and marginal up-tick in manufactured goods inflation by
0.57%. On the negative side, inflation in October was also revised
upwards by 14 bps to 9.87% from a provisional reading of 9.73%.
Decline in food prices drags down primary articles inflation and also WPI…
Primary articles inflation dipped to its multi-year low at 3.07% on account
of sliding fruits and vegetables prices. Fruits and vegetable prices
declined by 14% YoY impacted by the high base effect of December 2010
(25.7% YoY) and greater supply also. However, protein rich items like
milk, meat and fish continued to rise on a sequential basis. Within primary
articles, the index of non-food articles grew 1.48% YoY and 1.3% MoM
boosted by higher oil seed and sugarcane prices while the minerals group
index grew by 21.8% YoY and 2.58% MoM, balancing the overall dip in
primary articles to just -1.59% MoM.
Fuel group inflation stable at elevated levels
High crude oil prices and a sharp depreciation in the rupee have kept fuel
group inflation elevated at 14.91% YoY. This is moderation as compared
to a rise of 15.86% YoY in November 2011 due to no electricity growth
and 0.78% MoM rise in mineral oils. Naphtha and ATF fuels also saw a
sharp rise MoM.
Manufactured goods inflation above 7% still a cause of worry
Manufactured goods inflation moderated marginally to 7.47% from 7.70%
(November 2011) on a YoY basis but on a sequential basis it continued to
remain sticky, moving up by 0.52% MoM. Except for textile products,
which showed some signs of cooling, all other manufactured product
prices, continued to remain high. Core inflation i.e. manufacturing ex-food
also moderated on a YoY basis to 7.72% from 7.96% but continued to
rise by 0.52% on a MoM basis depicting demand side inflation remaining
high. Rupee depreciation is playing its role in imported inflation on certain
manufactured products like metals, gold, fertilisers, etc.
Analysis
December 7.47% WPI has been in line with RBI’s expectation of a decline
in December headline numbers. However, the major contributor of the
decline is primary articles whereas manufactured goods inflation
remained sticky and fuel inflation at elevated levels remains worrisome.
We expect that with slowing growth, dip in manufacturing inflation will
pick up pace in the next few months, thereby achieving RBI’s target of 6-
7% inflation by March 2012. We expect RBI not to immediately resort to
repo rate cut in its policy meeting to be held on January 24, 2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
WPI approaching RBI’s target zone…
Inflation for December 2011, as measured by the wholesale price index
(WPI), moderated sharply to 7.47% from 9.11% in November 2011 and
9.45% in December last year. It is the lowest reading in the last two
years. This was mainly on account of a sharp dip in primary articles
inflation to 3.07% YoY from 8.53% YoY in November 2011 due to a
seasonal decline in fruits and vegetable prices and a favourable high
base effect of December 2010 of 18.53% YoY creeping in. However, in
sequential terms, headline inflation (MoM) remained flat as the decline
in primary articles inflation of 1.56% was offset by a stable rise of 0.58%
in fuel inflation and marginal up-tick in manufactured goods inflation by
0.57%. On the negative side, inflation in October was also revised
upwards by 14 bps to 9.87% from a provisional reading of 9.73%.
Decline in food prices drags down primary articles inflation and also WPI…
Primary articles inflation dipped to its multi-year low at 3.07% on account
of sliding fruits and vegetables prices. Fruits and vegetable prices
declined by 14% YoY impacted by the high base effect of December 2010
(25.7% YoY) and greater supply also. However, protein rich items like
milk, meat and fish continued to rise on a sequential basis. Within primary
articles, the index of non-food articles grew 1.48% YoY and 1.3% MoM
boosted by higher oil seed and sugarcane prices while the minerals group
index grew by 21.8% YoY and 2.58% MoM, balancing the overall dip in
primary articles to just -1.59% MoM.
Fuel group inflation stable at elevated levels
High crude oil prices and a sharp depreciation in the rupee have kept fuel
group inflation elevated at 14.91% YoY. This is moderation as compared
to a rise of 15.86% YoY in November 2011 due to no electricity growth
and 0.78% MoM rise in mineral oils. Naphtha and ATF fuels also saw a
sharp rise MoM.
Manufactured goods inflation above 7% still a cause of worry
Manufactured goods inflation moderated marginally to 7.47% from 7.70%
(November 2011) on a YoY basis but on a sequential basis it continued to
remain sticky, moving up by 0.52% MoM. Except for textile products,
which showed some signs of cooling, all other manufactured product
prices, continued to remain high. Core inflation i.e. manufacturing ex-food
also moderated on a YoY basis to 7.72% from 7.96% but continued to
rise by 0.52% on a MoM basis depicting demand side inflation remaining
high. Rupee depreciation is playing its role in imported inflation on certain
manufactured products like metals, gold, fertilisers, etc.
Analysis
December 7.47% WPI has been in line with RBI’s expectation of a decline
in December headline numbers. However, the major contributor of the
decline is primary articles whereas manufactured goods inflation
remained sticky and fuel inflation at elevated levels remains worrisome.
We expect that with slowing growth, dip in manufacturing inflation will
pick up pace in the next few months, thereby achieving RBI’s target of 6-
7% inflation by March 2012. We expect RBI not to immediately resort to
repo rate cut in its policy meeting to be held on January 24, 2012.
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