India's wholesale price index rose 7.33 percent in the 12 months to April 12, accelerating from the previous week's annual rise of 7.14 percent, government data showed on Friday.
The rate, the last to be released before a Reserve Bank of India (RBI) policy review next week, was slightly below a median forecast of 7.38 percent in a Reuters poll of analysts.
KEY POINTS:
SUB-INDEX (WEIGHTING) Apr 12 Apr 5 Pct change
PRIMARY ARTICLES (22.025) 237.1 236.0 +0.5
Food articles (15.402) 228.6 228.5 --
Non-Food articles (6.138) 227.3 226.4 +0.4
Minerals (0.485) 630.2 595.8 +5.8
FUEL, POWER, LIGHT (14.226) 342.1 342.0 ---
AND LUBRICANTS
MANUFACTURED PRODUCTS (63.749) 197.6 197.6 0.0
Food Products (11.538) 203.2 203.1 +0.05
Annual inflation for the week ended Feb 16 was revised to 5.66 percent from 4.89 percent.
- The annual inflation rate was 6.34 percent during the corresponding week of the previous year.
- The wholesale price index stood at 226.9 points in the week ended April 12.
COMMENTARY:
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI:
"We do expect in this quarter ending June the inflation to be close to 7 percent. Once the impact of fiscal measures plays out, we could see inflation drift lower. It will remain a challenge to bring inflation below 6.5 percent."
GAURAV KAPUR, SENIOR ECONOMIST, ABN AMRO BANK, MUMBAI:
"Inflation could continue to hold between 7- 7.5 percent range over the next month. Moreover, the magnitude of revisions to past data indicate that the actual level of headline inflation could be 40-50 bps higher. Given that strong inflationary pressures are persisting, the recent CRR hike will not be enough to bring down inflation closer to the RBI comfort level. Thus we expect the RBI to hike at least the repo rate by 25 bps."
NAMRATA PADHYE, ECONOMIST AT IDBI GILTS, MUMBAI:
"Inflation is going to remain at an elevated level in the coming months. The impact of all these fiscal and monetary measures will start feeding in at the earliest in July-September. We have to see a significant easing in global commodity and food
prices for inflation to come down quickly."
"We expect an increase in the repo rate by 25 basis points in the policy next week."
SONAL VARMA, ECONOMIST, LEHMAN BROTHERS, MUMBAI:
"There has been some moderation in the pace of weekly rise in the WPI index, suggesting that some of the trade and supply-side measures taken by the government could be beginning to have an effect. Going forward, we expect inflation rate to remain in the 7.0-7.5 percent range in the coming weeks. In the April 29 policy, we expect the RBI to keep all rates unchanged, largely because of slowing growth."
D.K. JOSHI, PRINCIPAL ECONOMIST, CRISIL, MUMBAI:
"I don't see a significant role for the monetary policy in controlling inflation. RBI has already taken steps to suck liquidity which was to hike the CRR, now the responsibility lies to ensure adequate supply."
"Regarding supplies, food production, essentially wheat arrival numbers, have been very encouraging and the monsoon is expected to be normal and well distributed. There can be no better news than domestic production doing well"
"In coming months, we will see inflation close to 7 percent."
SHUCHITA MEHTA, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI:
"We believe inflation is going to be a cause for concern and we will continue to see it rise, but pace of acceleration may moderate due to the steps taken by the RBI."
"Inflation continues to rise and RBI will be hawkish, but perhaps it can wait before taking any steps."
ABHEEK BARUA, ECONOMIST, HDFC BANK, NEW DELHI:
"I think the bottom line is that we're still not seeing the impact of the fiscal measures. Or the fiscal measures have not been adequate. The implication is that the RBI will not be able to relax its vigilance on inflation. Perhaps some more measures are due in the April 29 policy. It strengthens the case for monetary tightening."
"(It) would take form of repo rate hike combined with some selective credit controls, which would reduce the quantum of leverage in the commodity sector and also prevent things like hoarding."
MARKET REACTION:
The 8.24 percent bond maturing in 2018 was unchanged at 8.18 percent from before the release of the data.
The partially convertible rupee was at 40.17/18 per dollar, unchanged from before the data.
LINKS: Ministry of Commerce and Industry Web site at:
www.eaindustry.nic.in
BACKGROUND:
- Annual inflation reached 7.41 percent on March 29, its highest in more than three years.
- Last week, the central bank announced a 50 basis point increase in the cash reserve ratio (CRR) to take effect in two stages. It said the move would suck 185 billion rupees ($4.6 billion) of surplus cash from the banking system.
- The RBI next reviews monetary policy on April 29 and markets and analysts are divided whether the central bank will act again to rein in inflation. RBI governor Y.V. Reddy has said inflation was unacceptably high.
- The finance minister said on Tuesday the government would consider more export curbs and fiscal moves to tackle rising inflation if necessary. Steps already taken would calm price pressures, he said, but it would be some time before the impact was felt.
- The government has withdrawn export incentives on steel and cement, and banned cement exports to increase local supplies. It has also scrapped import duties on most edible oils and banned exports of non-basmati rice.
- The RBI aimed to contain inflation close to 5.0 percent in 2007/08 (April-March). It wants to condition expectations in the range of 4.0-4.5 percent with an inflation rate of around 3.0 percent as a medium-term goal.
- The wholesale price index is more closely watched than the consumer price index (CPI) because it has a higher number of products in its basket and is published weekly.
(Additional reporting by V. Ramakrishnan, Anurag Joshi, Catherine Bosley and Saikat Chatterjee in MUMBAI and Surojit Gupta in New Delhi)
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