Inflation Tanks to 6.84%

For the week ending 6 Dec ’08, headline (wholesale price index, WPI) inflation fell to 6.84%, beating our and street estimates by large margins.

For the first time, Primary prices fell, backed by easing in food articles (food grains, fruits, vegetables and condiment and spices). Non-food articles also witnessed a fall. We expect the current trend to continue, further easing primary price inflation.

Except food products, all the major components witnessed a fall. Basic metals, alloy, chemicals and transport equipment fell. The week under review saw cuts in the administered fuel (petrol and diesel) as well as non-administered fuel.

Going forward, Inflation is softening ahead of our expectations. The cut in cenvat, a stronger rupee and the pass-through of falling international commodity prices now indicate that India might slide into a technical deflation much sooner than our earlier forecast.