• The WPI for the month of January stood at 9.90% against 1.20% in the corresponding month of the last year. The same figure posted 9.89% in the previous month. The figure released was below market expectationswhich was pegged at around 10.37%
  • The figure registered increased at the fastest pace in 17 months, driven by higher food and fuel prices. The market was hardly moved by the figure and continued falling instead of rising as the inflation figure posted was below expectation.
  • Acc. to the Finance Minister Pranab Mukherjee, the numbers were on expected terms as they were expecting a double-digit figure. The RBI had already raised the interest-rates to curb the inflation and is expected to do so once again in the monetary policy in April’10.

Inflation Internals

  • The sub-group of primary articles rose by 14.10% y-o-y against 5.21% in Mar’09.It surged high due to jump in the food articles inflation by 16.65% on a yoy basis but it declined by 0.5% on a mom basis due to lower prices of cereals, fish-inland fruits & vegetables and tea. However, prices of stuffs like poultry chicken, pork, milk, jowar, barley and coffee moved up.
  • In the same sub-group, the non-food articles decreased by 0.82% m-o-m but increased 12.77% on a yoy basis. The monthly decline was because of lower prices of vegetable seeds, soybean, copra, raw silk and tobacco. The index for minerals rose by 9.79% y-o-y which was due to higher prices of barites, steatite, chromite iron-ore and asbestos
  • The second sub-group of fuel, power, lights and lubricants increased by 6.9% y-o-y from -6.0% in Mar’10. It registered a growth of 0.28% m-o-m due to higher prices of petrol, light diesel oil, aviation turbine fuel and furnace oil
  • The third sub-group of manufactured products registered an increase of 7.13% y-o-y from 2.29% in Mar’10. It registered a growth of 0.28% m-o-m mainly because of huge increase in the prices of food-products, sugar and rubber & plastic products. Prices of commodities like cotton textiles, man-made textiles and chemical products too moved in upward direction while wood products, paper products declined.
  • Food products declined by 1.15% m-o-m due to decline in the prices of edible food products. Sugar declined by 3.73% while there was a decrease of 0.96% in edible oils. Man-made textiles surged by 0.4% due to increase in the yarn and fibre prices Iron & steel decelerated by 0.31% m-o-m

I believe that the current WPI levels are way beyond the comfort zone of the Reserve Bank of India and a hike in the key rates (repo rate, reverse repo rate) in the April 20 monetary policy review is almost certain. This is also because of the fact that the growth in IIP and the profitability of India Inc. is also back on track, thus leaves ample room for RBI to hike the key rates by at least 50 bps without hindering the growth process.

Author name:Rahul Sonthalia, Research Head, Kredent