WPI inflation at 6.8% for February 2013 - Angel Broking

Wholesale Price Index (WPI) inflation for February 2013 edged up to 6.8% as compared to 6.6% yoy in the previous month, rising by 0.6% mom largely driven by the rise in fuel index (3.0% mom). Inflation for the month of December 2012 has been revised marginally upwards to 7.3% yoy as against 7.2% earlier, reflecting the upward revision in fuel inflation.

Inflation in primary articles moderated for the third consecutive month to 9.7% yoy from 10.3% yoy in the previous month as inflation in both food (11.4% yoy) and non food articles (10.1% yoy) moderated. Fuel and power inflation paced higher to 10.5% yoy (3.0% mom) as against 7.1% yoy in the previous month. The rise in fuel inflation was largely expected owing to realignment of diesel prices and capping of subsidized LPG cylinders to 9 per household. Also, fuel inflation for December 2012 has been revised upwards to 10.3% yoy as compared to the earlier estimate of 9.4% yoy. The inflation in LPG component stood at a high of 26.2% yoy (higher by 21.0% on a mom basis) for February 2013. The same was revised considerably upwards to 19.0% yoy for December 2012 from the earlier estimate of 4.0% yoy.

Manufactured products inflation decelerated to a three-year low at 4.5% in February 2013 from 4.8% yoy in the previous month and 5.8% yoy in the corresponding month of the previous year. Even on a 3MMA basis, at 4.8% yoy it eased within the Reserve Bank of India (RBI)'s comfort zone of below-5%. In addition, core inflation ie the non-food manufacturing component of inflation, receded for the sixth straight month to 3.8% yoy as compared to 4.1% yoy in the previous month, reflecting the decline in commodity prices and weak pricing power.

Despite elevated CPI inflation (largely owing to supply-side factors) and the recent rise in WPI inflation, we still expect the RBI to ease the repo rate by 25bp in its March 19 policy review. The RBI is likely to draw comfort from easing inflation in manufactured products (and core inflation in particular), which reflect that demand-side inflationary pressures are in check.

In the growth-inflation dynamics, the RBI has recently adopted a more growth supportive policy stance in view of the prolonged slowdown in economic growth.

Real GDP growth is at a decade low of 4.5% yoy in 3QFY2013 and the CSO estimates a modest 5.0% yoy growth for FY2013, dampened by moderation in consumption, investment and export growth. Further, efforts to curtail the fiscal deficit (at 5.2% of GDP in FY2013 and 4.8% of GDP in FY2014) in the budget are also likely to support a more accommodating monetary policy stance. But at the same time, the current account deficit (at 4.6% of GDP in the first half of FY2013) is expected to widen to a record-high in FY2013 and it is likely to restrict the quantum of policy easing going forward.

Source : Equity Bulls

Keywords