WPI inflation in India soars to 14-month high of 7.52 pct in November, set to hit RBI rate cut stance

Dec 17 2013, 08:55 IST
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Food prices rose 19.93 per cent year-on-year in November, faster than an annual rise of 18.19 pe rcent in October. Food prices rose 19.93 per cent year-on-year in November, faster than an annual rise of 18.19 pe rcent in October.
SummaryWPI inflation in India in 2013 jumps, makes it tough for Raghuram Rajan's RBI to cut policy rate.

WPI inflation in India rose 7.52 per cent during November, 2013 as vegetable and fruit prices increased while protein-rich items like eggs also became dearer.

The whole sale price index stood at 7.52 per cent in November as compared to 7 per cent in October. The rate was 7.24 per cent during the corresponding month of the previous year. The numbers come just after CPI inflation (combined) released last week logged a high 11.24 per cent. Chances are with these high numbers RBI will go in for another rate hike.

For April-November period, the inflation rate was 6.7 per cent as against 4.84 per cent during the corresponding period of the last fiscal. The index for food articles group rose by 2 per cent due to egg prices rising 8 per cent, fruits and vegetables became expensive by 6 per cent while beef and buffalo meat prices rose 5 per cent each.

The index for fuel and power group rose by 0.1 per cent due to higher price of LPG, bitumen, and high speed diesel.

COMMENTARY

Dr Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, State Bank of India

WPI inflation touched 7.5% in Noví13, driven by increase in food prices (market expectations at 7%). The Sepí13 inflation numbers were revised upwards to 7.05% from 6.46%.

The WPI inflation trajectory will move down from Decí13 onwards, but we maintain that the downside may be capped and some CPI-WPI convergence may be visible in coming months. We have now revised our average WPI for FY14 at 6.7%. CPI trajectory should bring in more comfort, with the CPI numbers hitting a sub 9% by Marí14.

WPI March end numbers may be at 7.2%, with an upward bias. Core WPI has moved up, but what is worrying is the increase in imported inflation for the latest month, implying the impact of pass-through. Interestingly, CPI core and CPI excluding vegetables for Noví13 are now tracking at almost identical levels, implying the current surge being entirely driven by food prices. Our trend analysis suggests that pace of decline in vegetables prices at wholesale mandi has increased at a significantly faster pace beginning the 4th week of Noví13, and this has continued into first fortnight of Decí13. This will have a salutary impact on food prices in Decí13.

Purely on technical grounds, a 25 basis point rate hike is the most likely option on cards in due

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