Wholesale price inflation surprises analysts, eases to 6.62%

Feb 14 2013, 21:24 IST
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Analysts had expected wholesale prices, India's main inflation gauge, to rise an annual 7 per cent. (Reuters) Analysts had expected wholesale prices, India's main inflation gauge, to rise an annual 7 per cent. (Reuters)
SummaryAnalysts expected wholesale prices, India's main inflation gauge, to rise an annual 7%.

Inflation plummeted to a three year low of 6.62 per cent in January, but gave no respite to common man as prices of essential kitchen items like onion and potato continued to rule high.

The inflation rate, measured by movement in wholesale prices, moderated for the fourth consecutive month in January mainly on account of lower price rise of manufactured goods.

The WPI inflation was 7.18 per cent in December and 7.24 per cent in November. It was 7.23 per cent in January, 2012.

Food and primary articles have shown higher annual price rise, led by onion (111.52 per cent) and potato (79.07 per cent). Besides wheat, vegetables, rice and cereals too became dearer.

Commenting on the inflation numbers, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said it would further decline to 6.5 per cent by March end, but asked the government to release more food stock to ease price situation.

"Retail inflation is still high. WPI inflation in primary and food articles are still at higher levels. Efforts should be made to release larger stocks of food articles in the market," Rangarajan said.

Retail inflation stood at 10.79 per cent in January mainly on account of higher prices of vegetables, edible oil, cereals and protein-based items.

As per official data, inflation in manufactured items category fell 4.81 per cent in January from a year earlier, compared with an annual rise 5.04 per cent in December.

Inflation in food items and primary articles category was at 11.88 per cent and 10.31 per cent respectively in January.

Fuel prices rose 7.06 per cent in January, compared to 9.38 per cent in December. A likely increase in prices of diesel and petrol will reflect in February inflation number, which will be available next month.

Commenting on inflation, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: "Inflation is still above the comfort level and it should come down further".

Easing of inflation would provide much needed space to the Reserve Bank to lower policy rates going ahead. The RBI had projected March end inflation to be 6.8 per cent.

Although it is still above RBI's comfort zone of 5-6 per cent, the declining in the January inflation and subdued growth in industrial output could prompt a rate cut going forward.

Industry chamber CII said there was a need to address the supply side bottlenecks to increase availability of food stocks.

"The declining trajectory of both headline and core inflation has created sufficient room for RBI to cut its policy rates by 50 basis points in its review of monetary policy in March," CII Director General Chandrajit Banerjee.

The RBI is scheduled to come out with mid-quarter policy review on March 19.

"The mild moderation in core inflation, combined with the weaker-than-expected industrial performance in December 2012, boosts the likelihood of monetary easing in mid-quarter policy review in March," ICRA Senior Economist Aditi Nayar said.

The central bank had last month lowered interest rates by 0.25 per cent saying that with inflation showing signs of remaining range bound, it was now critical to arrest the loss of growth momentum.

According to the advance estimates of Central Statistical Organisation (CSO), the GDP growth in the current fiscal is likely to be 5 per cent. However, the government expects it to be over 5.5 per cent. The economy grew by 6.2 per cent in 2011-12 fiscal.


LEIF ESKESEN, CHIEF ECONOMIST FOR INDIA AND ASEAN, HSBC, SINGAPORE"It is clearly much lower than anticipated. Things are moving in the right direction, it is positive and encouraging for the Reserve Bank of India."However, other factors will have to fall into place before the RBI eases again, and that includes continuation of structural reforms and what the budget brings.

"The RBI will also keep a close watch on the consumer price inflation and the fiscal deficit."


"We seem to be looking at continued deceleration in manufacturing product inflation. I am not sure where the relief on fuel has come from, one has to look at the fine print."However, with both the headline inflation and manufacturing coming down, we are looking at a sharp and sustained downward trend, which should give the RBI the elbow room to go ahead at least with a couple of more rate cuts in the first half itself perhaps in March and April."I am surprised at the fuel index, I thought it would be much higher."


"Given that the downside surprise is much lower for core inflation than headline inflation, it looks like the fuel group price increase has not been factored into the headline number and will be added in the numbers going ahead."The RBI is aware of easing inflation but they are worried about current account deficit. I think the GDP print will be more important. We still maintain a 75 bps rate cut view over a period of time going ahead."


"The number is lower than expected and manufacturing inflation has surprised on the downside. It is interesting to note that something in commodities like sugar has pushed manufacturing product inflation lower. And core has marginally corrected further to 4.1 percent from 4.2 percent. With this inflation print, we are still maintaining 25 basis points call of a rate cut from RBI on March 19. There is at least a positive on WPI although retail CPI is still elevated."


"It should bode well for RBI. Our expectation is that inflation will ease more to 5.5-5.8 percent by fiscal year end. However, the RBI is also now worried about other variables like current account and fiscal deficits in policy making.

"My call is a rate cut will be likely in March or April by another 25 basis points."


"The inflation number for January is a pleasant figure. The moderating core inflation despite hike in the diesel prices for bulk consumers in the middle of the month would create room for RBI to cautiously cut the repo rate by 25 bps in the March policy."


"The print is more in line with our expectation and a result of lower readings in crude and manufacturing indices. Today's number might give a short-term respite for the forthcoming repo cut in the March RBI policy.

"However, the central bank would adopt a cautious approach resulting from consistent worries over imported inflation and higher current account deficit. We expect the bonds to trade rangebound with a downward bias in yields until March primarily in anticipation of a rate cut and timely OMOs (open market operations)."


"This shows that finally inflation is easing and fits with the growth slowdown. I think March inflation will be lower than RBI's projection and that should give RBI the comfort to cut rates by 25 basis points in March. Also, the revision trends are softening and so there could be a marginal upward revision if at all, to the January number. This number will strengthen the rate cut expectations going ahead."


The 10-year government bond yield fell 3 basis points to 7.81 percent after the data.The one-year OIS swap rate was at 7.60 percent, according to traders, down 4 bps from its previous close and down about 2 bps from beforehand.


- Annual consumer price inflation accelerated to 10.79 percent in January from the previous month, government data showed on Tuesday, making retail inflation in India the highest among the BRICS group of emerging economies - Brazil, Russia, China, and South Africa.

- Trade deficit rose to $20 billion in January from $17.7 billion in the previous month as imports surged while exports rose only slightly, adding pressure to a widening current account deficit and limiting the scope for further interest rate cuts by the central bank.

- Current account deficit is likely to reach a record high in 2012/13, the central bank governor warned, a gap which the bank said previously needed to shrink for it to lower borrowing costs.

- Industrial production unexpectedly shrank for a second straight month in December, weighed down by weak investment and consumer demand, casting doubt on Finance Minister P. Chidambaram's view that Asia's-third largest economy is showing signs of recovery.

- Investment malaise is thwarting quick economic rebound and India is on course to end the 2012/13 fiscal year in March with its slowest growth in a decade at 5.0 percent.

- The central bank lowered its key policy rate for the first time in nine months in January, but struck a cautious note on further easing as it waits to see how the government's upcoming budget aims to bring a bloated fiscal deficit under control.

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