Inflation – Weekly spike continues

Weekly spike continues. For the week ending 9 May ’09, headline inflation (wholesale price index, WPI) was 0.61%, in line with our and market estimates. The WPI for the week ending 14 Mar ’09 was raised to 0.71% from 0.27%. The consumer price index for industrial workers for Mar ’09 was 8.03% and for FY09 was 9.1%

Prices of primary articles stay up. Primary article prices continue to rise due to the jump in food prices. All the major components – food grains, fruit, condiments and spices, other food and non-food articles rose. Vegetables and pulses dipped marginally

Manufactured prices up. The rise in manufactured prices is largely due to the upward move in food product prices. Edible oil, textiles, chemicals and basic metals prices have also jumped up. Non-metallic products, machinery and transport equipment remained unchanged.

Outlook. We expect the WPI to slip into deflation by the end of May ’09. Inflation has spiked up w-o-w and we expect the trend to continue. This trend has reduced the likelihood of any further policy rate cuts in the near future.