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India’s July WPI inflation came in at 9.2% yoy, below the 9.4% yoy in June. This was in line with the
Bloomberg consensus expectation and a tad below our expectation of 9.3% yoy. On a mom basis, headline
inflation increased by 0.3% mom; seasonally adjusted (s.a.), similar to June. On a quarter-on-quarter; s.a.
annualized basis, July headline WPI inflation fell to 5.0% from its peak of 16.6% in February. The May headline
number was revised up by 50 bp to 9.6% yoy from 9.1% yoy, the quantum of the upward revision being lower than
in previous months.
Most of the increase in the July WPI is due to the upward adjustment of administered fuel prices on June
24. The effect of the price hike is captured by a monthly increase of 0.5% mom, s.a., as compared to 0.2% mom,
s.a. in June. Food inflation moderated to 8.0% yoy in July from 8.4% yoy in June due to a fall in the prices of fruits
and poultry products. On a sequential basis also, food inflation fell to 0.5% mom, s.a. in July from 0.9% mom, s.a.
in the previous month.
The July data suggests that sequentially, inflation continues to come off sharply. We think that the yoy
numbers are misleading and do not capture the decline in inflationary pressures since a big spike in 1Q2011. The
qoq annualized numbers bear this out, falling to 5.0% in July from 7.2% in June. The mom; s.a. annualized inflation
rate was at 4% in July. Demand continues to weaken and core inflation, as measured by the non-food
manufacturing inflation is trending lower in sequential terms. We believe this fall in inflation is observed to stay
even after factoring in a revision of the July WPI number in the next data release. Going forward, we expect yoy
headline inflation to slow to 6% by March 2012.
We maintain our stance of a pause in interest rate hikes by the Reserve Bank of India (RBI) in FY12 and
100 bp of rate cuts in FY13. There is a slowdown in economic activity in India which is being exacerbated by
rising interest rates and headwinds from the global economic environment. The sequential and yoy reduction in
inflation numbers assumes more importance as the RBI has made future policy actions data dependent. This print
may help in soothing some concerns that the rate hiking cycle will continue
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India’s July WPI inflation came in at 9.2% yoy, below the 9.4% yoy in June. This was in line with the
Bloomberg consensus expectation and a tad below our expectation of 9.3% yoy. On a mom basis, headline
inflation increased by 0.3% mom; seasonally adjusted (s.a.), similar to June. On a quarter-on-quarter; s.a.
annualized basis, July headline WPI inflation fell to 5.0% from its peak of 16.6% in February. The May headline
number was revised up by 50 bp to 9.6% yoy from 9.1% yoy, the quantum of the upward revision being lower than
in previous months.
Most of the increase in the July WPI is due to the upward adjustment of administered fuel prices on June
24. The effect of the price hike is captured by a monthly increase of 0.5% mom, s.a., as compared to 0.2% mom,
s.a. in June. Food inflation moderated to 8.0% yoy in July from 8.4% yoy in June due to a fall in the prices of fruits
and poultry products. On a sequential basis also, food inflation fell to 0.5% mom, s.a. in July from 0.9% mom, s.a.
in the previous month.
The July data suggests that sequentially, inflation continues to come off sharply. We think that the yoy
numbers are misleading and do not capture the decline in inflationary pressures since a big spike in 1Q2011. The
qoq annualized numbers bear this out, falling to 5.0% in July from 7.2% in June. The mom; s.a. annualized inflation
rate was at 4% in July. Demand continues to weaken and core inflation, as measured by the non-food
manufacturing inflation is trending lower in sequential terms. We believe this fall in inflation is observed to stay
even after factoring in a revision of the July WPI number in the next data release. Going forward, we expect yoy
headline inflation to slow to 6% by March 2012.
We maintain our stance of a pause in interest rate hikes by the Reserve Bank of India (RBI) in FY12 and
100 bp of rate cuts in FY13. There is a slowdown in economic activity in India which is being exacerbated by
rising interest rates and headwinds from the global economic environment. The sequential and yoy reduction in
inflation numbers assumes more importance as the RBI has made future policy actions data dependent. This print
may help in soothing some concerns that the rate hiking cycle will continue
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