November WPI inflation came in at 7.5% yoy, lower than the 8.6% yoy in October, mainly due to a higher base. This was in line with the consensus expectation and a tad lower than our expectation of 7.6% yoy. On a sequential basis, headline inflation ticked up 0.7% mom s.a., higher than the 0.4% mom rise in October. The September headline number was revised up to 8.9% yoy from 8.6% yoy. Core prices rose 0.8% mom compared to 0.4 % mom in October.
We expect headline inflation will come down to 6.5% yoy in March 2011. Though the RBI has indicated to pause in the December 16 meeting, we think high
sequential inflation, elevated inflation expectations, robust demand and rising asset prices will lead to 100 bp hikes in policy rates in calendar year 2011.
