The monthly WPI inflation rate for Nov 2011 was reported at 9.11% against consensus of 9.03%, primarily as manufacturing inflation which has 65% weight overall, still stayed high at 7.7% as also fuel inflation increased marginally while food inflation was the only component which showed signs of real slowdown.
While inflation of primary articles declined, it increased for other two broad groups - fuel and manufactured group. Impact of food articles prices was visible on food product prices (part of manufactured group) and inflation of food product declined to 6.75% in November 2011 from 7.80% in October 2011. However, inflation of non-food manufactured products increased to 7.9% in November 2011 from 7.6% in October 2011.
EXPERT’S COMMENTS:
Nomura:
“Inflation momentum has picked up as core inflation on a 3m-o-3m basis rose to 6.2% saar in November from 4.9% in October. In fact, we believe that supply-side inflationary pressures from the rupee’s depreciation in the last few months’ likely negated part of the moderation in commodity prices, even though demand-side pressures have eased on the lagged effects of monetary tightening, as demonstrated by weaker credit growth and industrial production. We expect inflation to fall more sharply in the next few months to reach around 7% in March 2012, primarily due to base effects and lower commodity prices, even though the rupee’s depreciation may partly offset such forces. Overall, we expect WPI inflation to average 8.8% y-o-y in FY12 (year ending March 2012) versus 9.6% in FY11. On the policy front, we maintain our call that the RBI will keep its policy rates on hold at its policy meeting on December 16 as core inflation remains elevated”.
Kislay Kanth, senior director, research, MAPE Securities:
“The inflation level above 9% is psychologically not very good, since the core objective of the RBI rate increases since Mar 2010 has been to contain the inflation rate, even if it came at the expense of growth rate slowdown. The RBI will find it tough to change its stance on interest rate driven monetary tightening to contain inflation, even as the IIP growth rate for Oct 2011 was at (-) 5.1%. The slowdown in manufacturing will continue until Mar 2012 during which month, the peak Index of Industrial Production was achieved last year. There are a lot of expectations from the market on a CRR cut and a Rate Pause stance from the RBI on Friday. Now it looks a bit difficult to foresee whether they will deliver on these concessions to the industry. As far as weekly inflation rates are concerned, food and primary articles inflation is genuinely slowing down, its just that the weight in overall WPI is low for those articles and stubbornly high fuel inflation is not helping. Part of the inflation is also due to the currency rates depreciation, which increases the costs of most raw materials, metals, fuel and some food products as well. The market could stay nervous in the anticipation of a move from the RBI. However, if the RBI stance is still aggressive on Friday, we could see a big negative impact on the markets in the following week”.
Devendra Kumar Pant, Director, Fitch Ratings:
“Monetary policy action aims at reduction of non-food manufactured inflation, which has increased in November. Industrial growth contraction in October 2011 and increasing non-food manufactured products prices in November 2011 leaves monetary authority in a dilemma. While contraction in industrial output advocates for monetary easing, increase in inflation of non-food manufactured products prices suggest otherwise”.
(Source: myiris)
(Source: myiris)
