The WPI for the month of May’10 stood at 10.16% compared to the previous month’s figure of 9.59%. The inflation numbers were higher than the street expectation of 9.56% and recorded a double-digit growth for the first month after trying to avoid it for so many months consecutively, leaving a negative impact on the masses
- The high figure hitting a 19-month high is due to the price pressures in the manufacturing sector
- Food prices, which have a weightage of 15% in the wholesale price index, have been in the double digit range through 2010 and showed no signs of coming down also contributed to the spike in the WPI
- The Planning Commission suggested that the RBI should aim at curbing the galloping prices and should take policy decisions by looking at the soaring inflation figures and not at the increasing industrial figures
- The RBI is scheduled to announce the first quarterly review of the monetary policy on July 27, during which the central bank could take some action to deal with the deteriorating price situation.
- According to the PM Manmohan Singh inflation would moderate to 5-6 per cent by the end of the calendar year
- The sub-group of primary articles rose by 16.60% y-o-y against 6.32% in May’09.It registered a growth of 3.52% m-o-m mainly because of high growth in the food articles, which increased by 0.75% m-o-m. The increase in the food articles was induced by the surge in prices of vegetables, pulses, tea, meat, gram and poultry chicken
- In the same sub-group, the non-food articles increased by 10.54% m-o-m due to higher prices of sugarcane, castor seed, raw silk and increase in the prices of fibres like jute, copra, etc.
- The index for minerals rose to 8.42% m-o-m which was due to higher prices of feldspar, asbestos, chromite and steatite
- The second sub-group of fuel, power, lights and lubricants increased to 13.05% y-o-y from -6.14 in May’09. It registered a growth of 1.15% m-o-m due to higher prices of lubricants, aviation turbine fuel and electricity
- The third sub-group of manufactured products registered an increase of 6.41% y-o-y from 2.18% in May’09. It registered a growth of 1.15% m-o-m mainly because of increase in the prices cottontextiles, man-made textiles, wood and wood products, basic metal and alloys and iron & steel
- Food products declined by 1.08% m-o-m due to lower prices of edible food products and oil cakes. Sugar prices declined by 2.77% while there was a decrease of 0.17% in edible oils due to lower prices of oil-seeds. Cotton-textiles surged by 4.35% m-o-m because of higher prices of raw cotton
- Metals accelerated by 3.36% m-o-m while iron and steel products increased to 4.92%
Increased inflation has again ignited the fears of rate hike by RBI. Benchmark 10 year yields rose 8 bps to 7.68% after the announcement of WPI numbers. Equity markets however ignored the inflation and increased 273 points.
Author:Rahul Sonthalia,Research Head, Kredent