India’s wholesale price index (WPI) rose to a higher-than-expected 7.55 percent in August from a year earlier,mainly driven by higher food prices due to deficient monsoon,government data showed on Friday.
The data comes ahead of a policy meeting at the Reserve Bank of India on Monday where the bank is expected to leave interest rates on hold as it grapples with inflation.
However,a move by the government late on Thursday to raise subsidised diesel prices for the first time in 15 months was seen as increasing the odds for the first rate cut since April.
Analysts on average had expected an annual WPI rise of 6.95 percent,a Reuters poll showed.
The annual reading for June was revised upward to 7.58 percent from 7.25 percent earlier. July’s inflation was provisionally put at 6.87 percent.
LEIF ESKESEN,CHIEF ECONOMIST FOR INDIA AND ASEAN,HSBC,SINGAPORE
Before the Reserve Bank of India begins to consider a rate cut it will need to see some inflation risks beginning to abate and more tangible progress from the government on cutting subsidy expenditure and introducing policy reforms.
Today’s data shows underlying inflation pressure remains firm. Importantly,the core inflation has picked up which will remain a concern for the RBI.
Yesterday’s fuel price increase is a positive step in the right direction and holds promise of but does not guarantee more reforms.
Independently,it won’t sway the RBI because although it will limit the slippage in the subsidy bill,the fiscal deficit will remain significantly above the target in the absence of further measures. The RBI will have to factor that in.
GAURAV KAPUR,ECONOMIST,ROYAL BANK OF SCOTLAND,MUMBAI
By and large,I think any rate action will get delayed now. So if the inflation number would have been a little benign this time around we could have seen something in October,but I think now the chances of that have gone down.
From a policy perspective I think going forward they (the RBI) will look for the government continuing on consolidation of the fiscal side. Yesterday’s moves are actually fairly limited in nature.
The impact of QE3 on crude oil prices and subsequently on inflation in India is something we will also be watching out for very closely,because on the growth side things seem to be bottoming out.
ABHEEK BARUA,CHIEF ECONOMIST,HDFC BANK,DELHI
We have changed our rate cut expectations after the diesel price and LPG move and we still think RBI will cut rates in its September policy notwithstanding the high inflation number because the diesel price and LPG decisions are far more significant moves in the direction of fiscal consolidation.
Given that RBI is committed to reciprocate to steps on fiscal consolidation,and that they held back on rates for so long,I think they might cut rates by 25 basis points on Monday.
DARIUSZ KOWALCZYK,SENIOR STRATEGIST,CREDIT AGRICOLE,HONG KONG On balance,we expect no cut (on Monday),with 50 bps in easing only in the December quarter. However,the odds of a reduction (in September) are about 35 percent so the market can move on the decision. The WPI data itself is negative for the INR,bonds and equities,and will limit their gains for the day. The INR OIS curve should rise.
RADHIKA RAO,ECONOMIST,FORECAST PTE,SINGAPORE
Upside surprise in August WPI is likely to put rate-cut calls to rest in the near-term,especially in wake of yesterday’s diesel price hike and likelihood of rebound in commodity prices in light of US stimulus measures.
RBI needs to balance between indications that the government is stepping up its fiscal consolidation efforts against immediate risks to price stability. Hearteningly improved risk-sentiments have eased depreciation pressures on the currency. We maintain our no-change call on rates for Monday.
RAHUL BAJORIA,REGIONAL ECONOMIST,BARCLAYS CAPITAL,SINGAPORE
The September policy decision remains a tricky call for RBI after the high WPI number. But since the government has at least taken the first step to cut subsidy,the ball is now in the RBI’s court. I think there will be some pressure from the finance ministry on the RBI to cut rates. We also expect another 25 basis points rate cut in the next quarter as the pace of core inflation rise should not create a discomfort to RBI.
MADAN SABNAVIS,CHIEF ECONOMIST,CARE RATINGS,MUMBAI
The fundamentals don’t justify a rate cut at this point of time because the inflationary expectations are still quite high. The quantitative easing in the U.S. is also likely to push up global commodity prices and add to inflation.
I don’t expect a rate cut on Monday as the RBI has repeatedly said inflation is its main goal post. But I won’t be surprised if there is one after the diesel price hike yesterday,which is a very positive step taken by the government.
RUPA REGE NITSURE,CHIEF ECONOMIST,BANK OF BARODA,MUMBAI
Inflation has increased sharply in August on significant increase in the prices of certain fuel items whose prices are market determined and a large increase in the prices of minerals and manufacturing products due to the lagged impact of rupee depreciation and relatively firm demand. Even core inflation has further increased to 5.56 percent. Given this,the RBI is unlikely to lower the policy rates on Sept. 17.
A PRASANNA,ICICI SECURITIES PRIMARY DEALERSHIP,MUMBAI
After this inflation number I don’t expect RBI to cut rates before January. If demand had been slow,then how are food,manufacturing,and non-food manufacturing prices rising? So there is very less spare capacity in the economy which means the trend growth is still high. With this inflation number,I think even the March inflation projection of 7 percent is under threat and so I don’t think RBI should cut rates now. In July,RBI had expected the inflation trajectory to ease,which I don’t think will happen soon.
SURESH KUMAR RAMANATHAN,HEAD OF REGIONAL RATES AND FX STRATEGY,CIMB,KUALA LUMPUR
Price pressures above consensus and in line with expectations that the RBI stays pat on rates. I see the risk of markets starting to pay on the swaps. With commodity prices still on the upside,it diminishes the hope for any easing stance by the RBI in the near term.
In our view RBI may also not be inclined to cut rates anytime soon as the diesel price hike will keep the inflation trajectory on the upside in the short term.
SHAKTI SATAPATHY,FIXED INCOME STRATEGIST,AK CAPITAL,MUMBAI
The higher August provisional headline is primarily a factor of significant jump in fuel index and core manufacturing. Further the revised June figure indicates persistent upside risk. The domestic price hike along with rising global crude are considered to be the near-term threats and would keep the inflation levels higher in the coming months.
The diesel price hike (on Thursday) is a good start in the right direction,but the RBI is expected to remain unmoved (on Monday) with an anticipated softer tone for the October policy meet. With almost all the negatives factored in,significant upside risk across the yield curve seems limited.
The Indian rupee held onto its gains,trading at 54.69/70 per dollar as of 0636 GMT,in line with levels before the data and stronger than its 55.43/44 close on Thursday.
The 10-year bond yield was trading at 8.17 percent,flat on the day but up from a session low of 8.10 percent.
The benchmark BSE stocks Index was up 2.1 percent,holding onto its gains.
– India raised the price of heavily subsidised diesel on Thursday to rein in its fiscal deficit and counter the threat of becoming the first of the big emerging economies to be downgraded to junk,but the move would pile upward pressure on inflation.
– Industrial production barely grew in July,hurt by weak investment that has become the beleaguered government’s primary concern as it scrambles to revive a flagging economy with little help likely from the central bank in the short-term.
– The Reserve Bank of India has cited high inflation for its hawkish stance despite a sharp slowdown in economic activity. The central bank is expected to keep rates steady at its scheduled policy review on Monday.
– Economic growth languished near its slowest in three years in the quarter that ended in June but was slightly better than expected,signaling the worst may be over for Asia’s third largest economy and dashing investor hopes of an early rate cut.
– Drought conditions have abated with a late revival in monsoon rains narrowing the shortfall from averages to just 8 percent in the season so far,Farm Minister Sharad Pawar said on Wednesday.
Inflation jumps to 7.55% in August
(PTI) Overall inflation rose to 7.55 per cent in August on account of rising prices of food items and manufactured goods and may further escalate next month as a result of the recent diesel price hike.
The high inflationary expectations may prevent the Reserve Bank from cutting interest rates in its mid-quarterly review of the monetary policy scheduled on Monday despite India Inc’s demand for rate cut to boost growth.
Inflation,as measured by the Wholesale Price Index (WPI),was 6.87 per cent in July. In August 2011,however,it was 9.78 per cent.
Overall,food inflation declined to 9.14 per cent in August,from 10.06 per cent in July. Food articles have 14.3 per cent share in the WPI basket.
Manufacturing or core inflation rose to 6.14 per cent in August from 5.58 per cent in July,on the back of high prices of cotton textiles,paper and paper products,cement and lime.
Analysts said the diesel price hike will put pressure on inflation as input costs will rise and restrain RBI from cutting interest rates.
The Government yesterday hiked diesel price by Rs 5.63 per litre and capped supply of subsidised LPG to 6 cylinders per household in a year.
“The combined direct and indirect impacts (of diesel price hike) will total about 100 basis points. We expect headline WPI inflation to rise above 8 per cent by end-2012,and hence do not see any scope for the RBI to cut rates until the end of 2012,” research firm Nomura said in a note.
In the food articles category,pulses turned expensive by 34.39 per cent in August,wheat by 12.85 per cent and cereals by 10.71 per cent on an annual basis.
Inflation for June was revised upwards to 7.58 per cent,from the provisional estimates of 7.25 per cent.
India Inc had demanded that RBI cut key rates after the April-August industrial output contracted by 0.1 per cent.
“The pickup in core inflation confirms our expectation that the RBI will maintain the policy rate and the CRR in the policy review.
“The first and second round impact of the diesel price hike is expected to push WPI inflation above 8 per cent,” ICRA Senior Economist Aditi Nayar said.
Industry chambers,however,continue their demand for making funds available cheaply. “The RBI should appreciate the intent of the Government in putting its fiscal house in order and perhaps complement its efforts in stimulating investment and consequently employment by making private borrowings from the banking system cheaper,” Ficci said.
Meanwhile,Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the diesel price hike would help bring down fiscal deficit by restructuring subsidies.
The government is targeting to bring down its fiscal deficit to 5.1 per cent of GDP in the current fiscal,from 5.8 per cent in 2011-12.
As per the official data,potatoes turned costlier by 68.86 per cent and rice by 10.29 per cent.
Inflation in eggs,meat,fish prices was 13.77 per cent,while in milk and fruits it was was 6.68 per cent and 1.14 per cent respectively.
Vegetables became costlier by 9.98 per cent in August,year-on-year. Inflation in this segment was 24.11 per cent in July. However,the pressure on prices of onions declined during August to (-) 20.67 per cent.
In non-food articles,inflation in oil seeds was 28.33 per cent,fibres (3.53 per cent) and minerals (9.74 per cent).
Index Numbers of wholesale Prices in India (Base: 2004-05=100) Review for the Month of August,2012
The official Wholesale Price Index for All Commodities (Base: 2004-05 = 100) for the month August,2012 rose by 1.1 percent to 166.6 (Provisional) from 164.8 (Provisional) for the previous month.
The annual rate of inflation,based on monthly WPI,stood at 7.55% (Provisional) for the month of August,2012 (over August,2011) as compared to 6.87% (Provisional) for the previous month and 9.78% during the corresponding month of the previous year. Build up inflation in the financial year so far was 3.48% compared to a build up of 3.61% in the corresponding period of the previous year.
Inflation for important commodities / commodity groups is indicated in Annex-1 and Annex-II.
The movement of the index for the various commodity groups is summarized below:-
PRIMARY ARTICLES (Weight 20.12%)
The index for this major group rose by 0.3 percent to 219.5 (Provisional) from 218.8 (Provisional) for the previous month. The groups and items for which the index showed variations during the month are as follows:-
The index for ‘Food Articles’ group declined by 0.4 percent to 211.4 (Provisional) from 212.2 (Provisional) for the previous month due to lower prices of fruits & vegetables (5%),poultry chicken (4%),fish-marine (2%) and milk (1%). However,the prices of arhar (8%),ragi (7%),gram and urad (6% each),moong,coffee and wheat (5% each),bajra,condiments & spices and masur (4% each),egg,tea and fish-inland (3% each),jowar,maize and rice (2 % each) and mutton and barley (1% each) moved up.
The index for ‘Non-Food Articles’ group rose by 3.8 percent to 206.8 (Provisional) from 199.2 (Provisional) for the previous month due to higher prices of castor seed (15%),raw silk (14%),gingelly seed (12%),coir fibre (11%),rape & mustard seed (9%),cotton seed and linseed (7% each),niger seed and flowers (6%),soyabean (5%),fodder,groundnut seed and sugarcane (4% each),guar seed,logs & timber and raw cotton (3% each),raw jute (2%) and sunflower (1%). However,the prices of raw rubber (6%),copra (coconut) and mesta (2% each) declined.
The index for ‘Minerals’ group declined by 1.3 percent to 331.3 (Provisional) from 335.8 (Provisional) for the previous month due to lower prices of sillimanite (13%),copper ore (9%),magnesite (7%),zinc concentrate and crude petroleum (3% each),steatite (2%) and chromite (1%). However,the prices of phosphorite (23%),iron ore (4 %) and barytes (1%) moved up.
FUEL & POWER (Weight 14.91%)
The index for this major group rose by 3.1 percent to 181.0 (Provisional) from 175.5 (Provisional) for the previous month due to higher prices of electricity (agricultural) (23%),electricity (industry) (11%),electricity (domestic) (9 %),electricity (railway traction) (8%),light diesel oil (7%),electricity (commercial) and naphtha (6%each),aviation turbine fuel (5%),furnace oil (4%),kerosene (2%) and petrol (1%).
MANUFACTURED PRODUCTS (Weight 64.97%)
The index for this major group rose by 0.8 percent to 146.9 (Provisional) from 145.7 (Provisional) for the previous month. The groups and items for which the index showed variations during the month are as follows:-
The index for ‘Food Products’ group rose by 3.0 percent to 164.5 (Provisional) from 159.7 (Provisional) for the previous month due to higher prices of sugar (8%),oil cakes and gur (6% each),gram powder (besan),sooji (rawa) and gingelly oil (5% each),wheat flour (atta),khandsari and cotton seed oil (4% each),tea dust (unblended) and maida (3% each),mustard & rapeseed oil,vanaspati and mixed spices (2% each) and gola (cattle feed),groundnut oil,soyabean oil,bakery products,processed prawn and ghee (1% each). However,the prices of tea leaf (unblended) (1%) declined.
The index for ‘Textiles’ group rose by 0.2 percent to 130.4 (Provisional) from 130.1 (Provisional) for the previous month due to higher prices of man made fibre,jute yarn and cotton fabric (1% each).
The index for ‘Wood & Wood Products’ group rose by 0.3 percent to 169.6 (Provisional) from 169.1 (Provisional) for the previous month due to higher prices of processed wood (1%).
The index for ‘Paper & Paper Products’ group rose by 0.5 percent to 135.2 (Provisional) from 134.5 (Provisional) for the previous month due to higher prices of paper cartons / boxes (6%),newspaper (2%) and paper rolls (1%). However,the prices of computer stationery (2%) and newsprint (1%) declined.
The index for ‘Leather & Leather Products’ group rose by 0.4 percent to 134.2 (Provisional) from 133.7 (Provisional) for the previous month due to higher prices of leathers (1%).
The index for ‘Rubber & Plastic Products’ group rose by 0.7 percent to 136.9 (Provisional) from 135.9 (Provisional) for the previous month due to higher prices of plastic products and rubber products (1% each).
The index for ‘Chemicals & Chemical Products’ group rose by 0.6 percent to 143.2 (Provisional) from 142.3 (Provisional) for the previous month due to higher prices of di ammonium phosphate (3%),pigment & pigment intermediates and organic manure (2% each) and synthetic resin,paints,non-cyclic compound,basic organic chemicals,adhesive & gum,ammonium sulphate,basic inorganic chemicals,safety matches/ match box and antibiotics (1% each). However,the prices of rubber chemicals and distemper (2% each) and polymers (1%) declined.
The index for ‘Non-Metallic Mineral Products’ group rose by 1.1 percent to 164.2 (Provisional) from 162.4 (Provisional) for the previous month due to higher prices of railway sleeper (3%),grey cement (2%) and white cement and polished granite (1% each). However,the prices of glass bottles & bottleware (1%) declined.
The index for ‘Basic Metals,Alloys & Metal Products’ group rose by 0.1 percent to 166.6 (Provisional) from 166.4 (Provisional) for the previous month due to higher prices of gold & gold ornaments (3%),ferro chrome (2%) and nuts/bolts/screw/ washers,steel: pipes & tubes,ferro manganese,zinc and aluminium (1% each). However,the prices of sponge iron (3%),pencil ingots (2%) and wire rods,melting scrap,gp/gc sheets,pig iron,copper products (other than wire) and rounds (1% each) declined.
The index for ‘Machinery & Machine Tools’ group rose by 0.2 percent to 128.1 (Provisional) from 127.9 (Provisional) for the previous month due to higher prices of conductor (6%),lamps,fans and material handling equipments (3% each),harvester,ups / stabilizer,fibre optic cable and electric switches (2% each) and insulators,electrical wires,electric switch gears,air conditioner & refrigerators,capacitors,thresher and plastic machinery (1 % each).
The index for ‘Transport,Equipment & Parts’ group rose by 0.6 percent to 129.3 (Provisional) from 128.5 (Provisional) for the previous month due to higher prices of auto rickshaw / tempo / matador (3%),tractors (2%) and parts of ships/boats etc.,bus / mini bus / truck and motor cycle / scooter / moped (1% each).
FINAL INDEX FOR THE MONTH OF JUNE ,2012 (BASE YEAR: 2004-05=100)
For the month of June,2012,the final Wholesale Price Index for All Commodities (Base: 2004-05=100) stood at 164.7as compared to 164.2 (provisional) and annual rate of inflation based on final index stood at 7.58 percent as compared to 7.25 percent respectively as reported on 16.07.2012.