Expert views - Inflation at 7.24 percent in November, below expectations

MUMBAI Fri Dec 14, 2012 12:30pm IST

A man carries a sack filled with maize at a wholesale vegetable market in Ahmedabad August 14, 2012. REUTERS/Amit Dave/Files

A man carries a sack filled with maize at a wholesale vegetable market in Ahmedabad August 14, 2012.

Credit: Reuters/Amit Dave/Files

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MUMBAI (Reuters) - India's wholesale price index rose a slower-than-expected 7.24 percent in November from a year earlier, government data showed on Friday.

Analysts on average had expected an annual rise of 7.6 percent. The annual reading for September was revised up to 8.07 percent from 7.81 percent earlier.

Core wholesale price index was estimated to have risen by 4.5 percent in November, according to a Reuters snap survey of three traders and analysts, compared with around 5.2 percent in October.

COMMENTARY

ROBERT PRIOR-WANDESFORDE, ECONOMIST, CREDIT SUISSE, SINGAPORE

"It's the second consecutive pleasant surprise.

"I think maybe this is the first sign we're getting another downward leg in inflation. This is something we've been anticipating for some time.

"I think it's going to fall further. I'm looking for the headline rate to come below 7 percent in February. I think it will come below 6 percent from around the middle of 2013, which in turn sets us up quite nicely for not just one RBI rate cut at the January meeting but perhaps a series of reductions."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"Today's data primarily reflects reduced pricing power of manufacturing companies on the back of severe demand slowdown. This means, despite the festival season, manufacturing companies were not able to pass on increased cost pressures to the consumer.

"It's a definite sign of moderating inflation on account of growth slowdown yet the number is quite high per se. And, I don't think the RBI will be in a position to reduce policy rates on December 18.

"But the probability of a rate reduction in the month of January has now gone up."

GAURAV KAPUR, SENIOR ECONOMIST, ROYAL BANK OF SCOTLAND, MUMBAI

"I think RBI will wait till January to cut rates as base effect and seasonal pressures will keep inflation on higher side in the next two months. But inflation trajectory until next October is clearly moderating and I think we will end March 2013 with inflation close to 6.5-6.75 percent.

"Also, core inflation on a month-on-month basis is moderating due to slowdown in manufactured product prices which should be comforting to RBI. But since RBI has clearly given a guidance for March quarter and also since consumer price index is high at 9.9 percent, I think there is a bigger chance for rate cut in January than December."

RAHUL BAJORIA, REGIONAL ECONOMIST, BARCLAYS CAPITAL, SINGAPORE

"The main concern is the upside revisions to inflation numbers. But the trajectory of inflation is becoming apparent that inflation will remain on softer side. Given the guidance I don't think the central bank will cut rates in December, but will wait for another inflation print.

"There is an outside chance of a 50 basis points rate cut in January which will have a much bigger impact on market sentiment. If there is no rate cut this policy, then the guidance would be more pointed on rate cut may be as early as January and India can join the excessive monetary easing followed globally."

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI

"Some of the trends in core inflation are now close to comfort level, which is more on the back of non-food manufacturing prices and the food price index is also relatively softer.

"Both on the level of absolute inflation as well as the direction, it is turning out to be far more comforting than earlier.

"It is likely to continue but we may see a little bit of a spike in December.

"Despite the revisions, we are looking at scaling down of inflation trajectory and the year-end inflation at below 7 percent.

"It does call for cutting rates if the RBI is indeed guided by direction and level of inflation in the current context. There is a new normal that is emerging.

"If you go by the RBI's stated comfort level of 5.0-5.5 percent, then there is no case for cutting rates. But clearly the RBI has accepted the fact there is a new normal, a new context to inflation, which is above 6 percent.

"We don't immediately expect the RBI to cut rates in December, but we may see a CRR cut."

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

"We were anticipating manufacturing to be lower due to a lingering stronger rupee in September and most of October, but the extent of correction has been sharper than expected.

"What is surprising and unexplained is the fall in the fuel price inflation. In rupee terms the crude basket had risen by 1.4 percent in November, as against a decline of 4.6 percent in October. Also concerns remain on unadjusted electricity tariffs, which should have come on board.

"Overall, we cannot however disregard this number and core inflation is well below 5 percent at 4.49 percent as import-heavy items within manufacturing have eased month-on-month.

"The RBI would definitely have some sense of relief looking at this number. But I still believe it will be status quo on rates in December. However, we may have to review afresh our "no rate cut" call for January.

"If the electricity tariffs and the crude basket is not adjusted in fuel prices, then the peak inflation in December may be well below 8 percent."

HARISH AGARWAL, BOND DEALER, FIRST RAND BANK, MUMBAI

"The reading is good for the market. But the revisions every month have been quite steep. The RBI may want to wait for January before it takes a call on a rate cut. The 1-year swap rate is now factoring in the probability of a 50 basis points rate cut in January."

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"Given the food and manufacturing prices are much better behaved than what many private analysts had predicted, we expect inflation by March-end to be sub-7 percent. The slowdown in manufacturing inflation in the last couple of months has a more positive impact compared with the rupee depreciation and we expect RBI to cut rates in the March quarter.

"There is nothing that should stop them from cutting rates in December barring the fact that headline WPI can go up for one month due to base effect and RBI could be more concerned about the optics when it wants to cut rates."

ASHUTOSH DATAR, ECONOMIST, INDIAINFOLINE, MUMBAI

"This is the second month inflation has surprised on the downside. Food inflation has behaved well despite the monsoon. However, I think we have to wait one more month to take a call on the inflation trajectory.

"I still expect no rate change in the December policy. There is likely to be a 25 basis points CRR cut."

MARKETS

The 1-year overnight index swap fell 3 basis points to 7.62 percent from levels before the data, according to a trader.

The rupee was slightly stronger at 54.41/43 to the dollar from around 54.45 levels beforehand and the benchmark 10-year bond yield fell 1 bp to 8.15 percent. The BSE stock index .BSESN edged up 0.3 percent.

BACKGROUND

- The headline inflation data will be the critical factor for the Reserve Bank of India's scheduled monetary policy review on December 18. A Reuters poll released on Thursday showed economists expect the central bank to keep interest rates unchanged, with respondents split over whether it will cut the cash reserve ratio for banks.

- The RBI has kept interest rates on hold since April because of stubborn inflation, defying calls from business and politicians for help in fighting a slump that has dragged the economy toward its slowest growth in a decade.

- Annual consumer price inflation accelerated to 9.90 percent in November from the previous month, government data showed on Wednesday. The retail inflation is the highest among the BRICS group of emerging economies - Brazil, Russia, China, and South Africa - and is above what the RBI calls its comfort level.

- A surge in manufacturing output pushed industrial growth to its highest in more than a year in October, a sign that Asia's third largest economy may have turned a corner that strengthens the central bank's case against a rate cut.

(Reporting by India Treasury team; Editing by Ranjit Gangadharan)

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