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Market Commentary
WPI inflation eases slightly to 7.45% - Angel Broking
Posted On : 2012-11-15 22:09:56( TIMEZONE : IST )
Key highlights
- Wholesale Price Index (WPI) inflation for the month of October 2012 surprised positively by slightly easing amidst expectations of higher inflation during the month.
- WPI inflation for October 2012 stood at 7.45% as compared to 7.81% during September 2012 and 9.87% in the corresponding period of the previous year.
- On a month-on-month (mom) basis, headline WPI inflation grew at a slower pace of 0.18% in October as compared to 0.66% during September 2012.
- The moderation can be mainly attributed to easing inflation in food articles as well as components of core inflation.
- On the flipside, inflation for August 2012 has been revised upwards to 8.01%, the highest in eight months, from 7.55% reported earlier.
Trends in Inflation for the month of October 2012:
Primary articles inflation moderated and stood at 8.2% during the month as compared to 8.8% in the previous month and 11.0% in the corresponding period of the previous year. This can be attributed to an easing in prices of food articles which decelerated for the fourth straight month to 6.6% aided by decline in prices of fruits and vegetables. Inflation in food grains continued to remain high at 15.5% vis-Ã -vis 17.2% in the previous month and 5.5% in October 2011. Inflation in fruits and vegetables declined by 2.2% during the month as compared to 0.1% in September 2012 driven by decline in vegetable prices by 7.4% on a high base.
Inflation in protein-rich items such as milk and eggs, meat and fish remained stable at 6.3% and 13.3% respectively. Non-Food articles' inflation slightly increased to 10.8% as compared to 10.0% in the previous month while inflation in Minerals too increased to 13.7% as compared to 12.4% in September 2012.
Fuel and power inflation stood at 11.7% as compared to 11.9% in September 2011. Amongst this category, inflation in mineral oils stood at 10.9% due to high prices of high speed diesel, aviation turbine fuel and light diesel oil.
Inflation in Manufactured products, with the highest weightage in the WPI at 65%, marginally eased to 5.9% as compared to 6.3% in September 2012. On a mom basis too, inflation in manufactured products decelerated to 0.14%. However, inflation in manufactured food products remained stable at a high level of 9.8% as compared to 7.7% in the previous year. The moderation can be mainly attributed to easing prices of chemicals and chemical products, non-metallic minerals and metal products. Thus, the softening of commodity prices has aided core inflation which decelerated to 5.6% as compared to 5.8% in the previous month but it still remains above the Reserve Bank of India's comfort level.
Policy Outlook
In spite of the better-than-expected print for headline inflation during the month, we believe that inflation continues to remain sticky at the 7% level which is higher than the Reserve Bank of India (RBI)'s comfort zone. At the same time, we believe that there is a higher possibility of the figures getting revised upwards. Hence, we maintain our view that the central bank is likely to pause rates to maintain its vigilant stance on inflation even as it voices concern over sluggishness in growth in the December policy review. Going ahead in 4QFY2013, we expect that with moderation in inflationary pressures, the RBI is likely to ease its policy rate by about 25 - 50bp.
