WPI nears 5% – Rising Faster than Markets

India’s WPI inflation rose more than expected by 4.78% y-o-y in November from 1.34% in October. On a seasonally adjusted MoM basis, inflation was up 2.2% v/s 0.4% last month. Given the current uptrend, inflation could likely cross 6% in December and 8% by March 10.

Growth was led primarily by Primary Articles (+11.8% YoY), with food being the major driver (+16.7%). Within this category, key commodities driving prices were pulses (+35.2%), fruits and vegetables (+13.7%), rice (+ 13%), and milk (+11.5%).

More worryingly, prices of non-food manufactured products such as beverages & tobacco, textiles, paper products,basic metals and alloys, machinery are also on the rise.

When growth is subdued, inflation can be ignored. However, with both growth and inflation surprising on the upside we believe that a policy action is imminent.

Consensus estimate that the WPI will touch 8% by March-2010 and rate tightening will begin in Jan-2010. Can the Finance Minister really handle it before it totally out of control ?