WPI inflation spikes to 14-month highs
WPI inflation print for November-2013 came in at 7.52% YoY, highest since September-2012. The reading was higher than our expectation of 7.2% YoY, amidst a sharper than expected rise in vegetables prices, which rose 10.6% MoM, higher compared to 9.3% MoM rise in vegetables CPI.
In a worrying development, the September inflation reading has been revised up to 7.05% YoY versus provisional print of 6.46%.
Food inflation spikes amidst stubborn vegetables inflation
The primary food inflation came in at 19.9% YoY highest since June-2010. The increase in food inflation pressures is mainly attributable to rise in vegetables inflation to a record high of 95.3% YoY. The supply side inefficiencies in vegetables markets coupled with crop spoilage especially in tomatoes due to adverse weather conditions has led to spike in vegetables inflation. However, WPI ex vegetables inflation remained nearly flat at 5.6% YoY.
Fuel inflation spikes on administered price hikes
Fuel inflation rose to 11.3% YoY from prior reading of 10.1% YoY, amidst an unfavourable base effect. On a sequential basis, the inflation rose by 0.1% MoM driven by a 0.6% MoM rise in administered prices, while non-administered prices dropped 1.1%. Inflation was driven by a regular hike high speed diesel prices along with a 4.4% MoM rise in LPG prices, given the hike in unsubsidised cylinder prices on elevated global crude prices. Given that suppressed inflation in administered products is coming to the fore, we are not worried as it possibly supports a healthy fiscal balance in the future.
Core inflation stays flat at 2.6% YoY
Non-food manufactured products inflation increased to 2.63% YoY from prior reading of 2.58% YoY. While core inflation witnessed a spike in the last month, amidst delayed impact of Rupee depreciation, a muted trend shows that weak pricing power is restricting producers from hiking prices.
Another 25 bps repo rate hike possible amidst elevated price pressures
Last week, the RBI Governor Rajan commented that the RBI is very uncomfortable with the high level of inflation in the economy. Prior to the release of this inflation reading, while there was some divide in the markets on timing of another repo hike, today's print along with the record high CPI has almost sealed a 25 bps repo hike on 18th December.
Please refer to the attached document for the detailed report.
Regards,
ICICI Bank : Treasury Research
Contact:
Kanika Pasricha
022-26531414 (ext 2260)
