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Jan Inflation Up 8.6%, Breaches RBI’s 10 March Estimate

February 15, 2010

The Indian Inflation as measured by the WPI rose 8.6% in Jan, higher than expectations and breaching the RBI’s 8.5% estimate for 10 March. On a seasonally adjusted MoM basis, inflation was up 1.3% vs. 0.9% last month. Going forward, while primary product prices are likely to abate, an impending fuel price adjustment coupled with rising manufactured prices is likely to result in headline numbers crossing 9% in Feb and heading towards double-digits in March.

Primary products up 14.5%. While fruits and vegetable prices have decelerated, pulses/cereals/oilseeds remain pressure points; fuel up 6.9% led by market determined fuels (ATF, naphtha, furnace oil);manufactured products up 6.6%, with pressure coming from chemicals, machinery and textiles.

The economy is now showing clear signs of a demand revival, as reflected in both macro and micro level data. There is a high probability of a hike post the budget but RBI recent statements indicate that mid-cycle actions will be taken only if there is an
unprecedented/unanticipated event.

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