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Core inflation below 5% leaves room for rate cut…
The Wholesale Price Index (WPI) moderated to 6.89% in March 2012 from
9.68% in March 2011 and 10% in September 2011. Manufactured goods
inflation, which has the highest weightage (64.97%), came down sharply
to 4.87% while primary articles inflation started rising from -0.5% to
9.62%. Sequentially, the WPI index rose 0.88% led by over a 2% rise in
prices of primary articles. The trend of upward revision of provisional
figures continued. January 2011 inflation was revised upwards to 6.89%
from 6.55% provisional.
Fuel and manufactured inflation moderated sharply with the high base
effect creeping in. However, sequential sharp increases in prices of
primary articles pose a threat of inflation again inching upwards. A fuel
rate hike can be another pressure point.
Price of primary articles on the rise…
Primary articles inflation rose to 9.62% YoY and 2.38% MoM. Vegetable
became dearer by 16% MoM (tomato 84%; cabbage: 79%; brinjal: 43%)
Protein rich items (milk, meat and fish) did not see a sequential increase but
were up 17% YoY. Within non food primary articles, prices of fibre declined
while that of oil seeds increased both sequentially as well as YoY. Mineral
prices stayed elevated at ~28% YoY.
Supply chain constraints and lack of storage facilities have led to an
increase in prices of perishable food stuff. The government in Union Budget
2012-13 has announced several measures to augment supply.
Petrol & diesel price hike inevitable, | 5 hike can add ~61 bps to inflation
Fuel inflation moderated to 10.41% from 12.83% in February 2012 due to
the favourable high base effect (March 2012:12.49%). Brent crude prices
continue to trade in the range of $120-123/barrel. With hardening of crude
oil prices and mounting pressure on the government to reduce its fuel
subsidy burden to curtail fiscal deficit, revision in administered fuel price is
inevitable. First round impact of | 5 hike in petrol & diesel prices will add
~61 bps to the headline inflation.
Core inflation moderates as sluggish demand, high base effect creep in…
Manufactured goods inflation has come down below 5% to 4.83%, its
lowest since December 2009. Manufacturing ex-food (core inflation) also
moderated sharply to 4.69% as compared to 8.48% in March 2011. Abating
demand side price pressures, high base effect and softening global
commodity prices dragged core inflation down. Going forward, pass
through of increased freight and fuel cost and full impact of pass through of
indirect taxes on manufactured products may offset the reduced demand
side price pressures.
Analysis: RBI in its Macroeconomic review has stated, “While room for
easing policy rates exist from here, the timing and extent of cuts will need
to factor in the inflation risks that persist in 2012-13..” Core Inflation (RBI’s
measure of demand side price pressure) has moderated below 5%. Even
Inflationary expectations have started moderating. We, therefore, believe
RBI will announce a nominal 25 bps rate cut in its annual policy to be
announced today and take its first step towards reviving growth while, as
stated in the review, continuing to be cautious on further rate cut actions
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Core inflation below 5% leaves room for rate cut…
The Wholesale Price Index (WPI) moderated to 6.89% in March 2012 from
9.68% in March 2011 and 10% in September 2011. Manufactured goods
inflation, which has the highest weightage (64.97%), came down sharply
to 4.87% while primary articles inflation started rising from -0.5% to
9.62%. Sequentially, the WPI index rose 0.88% led by over a 2% rise in
prices of primary articles. The trend of upward revision of provisional
figures continued. January 2011 inflation was revised upwards to 6.89%
from 6.55% provisional.
Fuel and manufactured inflation moderated sharply with the high base
effect creeping in. However, sequential sharp increases in prices of
primary articles pose a threat of inflation again inching upwards. A fuel
rate hike can be another pressure point.
Price of primary articles on the rise…
Primary articles inflation rose to 9.62% YoY and 2.38% MoM. Vegetable
became dearer by 16% MoM (tomato 84%; cabbage: 79%; brinjal: 43%)
Protein rich items (milk, meat and fish) did not see a sequential increase but
were up 17% YoY. Within non food primary articles, prices of fibre declined
while that of oil seeds increased both sequentially as well as YoY. Mineral
prices stayed elevated at ~28% YoY.
Supply chain constraints and lack of storage facilities have led to an
increase in prices of perishable food stuff. The government in Union Budget
2012-13 has announced several measures to augment supply.
Petrol & diesel price hike inevitable, | 5 hike can add ~61 bps to inflation
Fuel inflation moderated to 10.41% from 12.83% in February 2012 due to
the favourable high base effect (March 2012:12.49%). Brent crude prices
continue to trade in the range of $120-123/barrel. With hardening of crude
oil prices and mounting pressure on the government to reduce its fuel
subsidy burden to curtail fiscal deficit, revision in administered fuel price is
inevitable. First round impact of | 5 hike in petrol & diesel prices will add
~61 bps to the headline inflation.
Core inflation moderates as sluggish demand, high base effect creep in…
Manufactured goods inflation has come down below 5% to 4.83%, its
lowest since December 2009. Manufacturing ex-food (core inflation) also
moderated sharply to 4.69% as compared to 8.48% in March 2011. Abating
demand side price pressures, high base effect and softening global
commodity prices dragged core inflation down. Going forward, pass
through of increased freight and fuel cost and full impact of pass through of
indirect taxes on manufactured products may offset the reduced demand
side price pressures.
Analysis: RBI in its Macroeconomic review has stated, “While room for
easing policy rates exist from here, the timing and extent of cuts will need
to factor in the inflation risks that persist in 2012-13..” Core Inflation (RBI’s
measure of demand side price pressure) has moderated below 5%. Even
Inflationary expectations have started moderating. We, therefore, believe
RBI will announce a nominal 25 bps rate cut in its annual policy to be
announced today and take its first step towards reviving growth while, as
stated in the review, continuing to be cautious on further rate cut actions
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