Money Bol

Inflation for week ending October 17 at 1.51%

Indian inflation measure WPI showed prices rose by 1.51% for the weekending October 17, 2009 over corresponding week last year. The rise was less than analyst’s expectation of 1.59%. Rise in index last year during this week was 10.58%.

As compared to last week the benchmark measure remained unchanged whereas compared to week ending September 19, WPI declined by 0.45%.

Index of ‘Primary articles’ which has led to build up inflation showed a rise of 8.67% YoY infact declined over the last week as well as from month ago. MoM, prices of primary articles have declined by 1.16%. All fish lovers who saw prices rising for October 10 rejoiced a bit with decrease in prices for fish marine component (6% current week compared to 14% last week).

Fuel, Power, light and lubricants which was responsible for the high inflation rate last year has declined by 6.2% over last year. MoM decline in fuels index is 0.26%.

‘Manufactured products’ is the only component in WPI which has shown a increase over the last week. The index grew 0.14% over the week and 1.56% over the year but MoM declined by 0.41%. Food products component of Manufactured products has increased by 17.4% over the previous year.

As reported last week as well, primary articles and food products having a weight of 22% and 11% respectively have led the increase in prices this time. RBI in the recently released 2^nd Quarter review of monetary policy also expressed its concern on the increasing inflation. RBI governor expects inflation to reach 6.5% by December end. Last year’s inflation and this year’s are very different in the respect that last year it was a worldwide phenomenon but this year none of the major economies are experiencing inflation till now. This is one aspect because RBI needs to take a more cautious approach in taming inflation.

In direction towards exiting from an accommodative policy approach, RBI increased the statutory liquidity ratio (SLR) by 1% to 25%. This is not expected to have much effect as overall banking industry has a SLR of about 27%. But increasing inflation as well as RBI move has further strengthened the concerns of an early interest rate increase. Both equity markets and G-Sec markets have already reacted to such concerns. Benchmark G-sec yields rose from a low of 7% around Sep 24 to 7.4% before the announcement by RBI following which yields have dropped to 7.29% currently. Nifty is down from 5150 levels seen around Oct 17 to 4711 on Oct 30.

Indian markets have already started feeling the impact of increasing inflation but where exactly this end up and how effective RBI proves in controlling the inflation along with balancing growth is an important question which will be answered only in coming few months.

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