The Indian headline WPI shot up to 5.79%YoY compared to 4.86%YoY last month. Sequentially, headline WPI rose by 1.5%MoM in seasonally adjusted terms which is highest pace of sequential increase since December 2010 (which incidentally was also caused by a vegetable shock). The surge in vegetable prices (17.8%MoM) coincided with sharp adjustment in mineral fuel (4.4%MoM) prices during July, pushing headline inflation to a five month high. Manufacturing inflation, however remained unchanged at 2.8%YoY in July.
Food inflation accelerated to 11.9%YoY on higher prices of vegetables and cereals. While prices of vegetable such as onion (34%MoM), potato (16%MoM) surged in July on poor arrivals and supply chain disruption, the continued increase in cereals such as rice (4.6%MoM, 21.2%YoY) remains a cause of concern. Especially given the robust sowing (19.6% above normal) of kharif crops in the current monsoon season.
Fuel index rose by 11.3%YoY or 3%MoM in July, reflecting partly a 7.5%MoM increase in international Brent crude prices in rupee terms. Yet we note that the adjustment is still not completely over. For example, under-recovery in diesel remains elevated at Rs9.29, notwithstanding a cumulative hike of Rs11 since September 2012.
The surge in vegetable prices in last two months has compounded the supply-side inflationary pressure already building up on account of a weaker rupee. We maintain our WPI forecast for FY14 at 5.5% (Apr-Jul at 5% so far) while acknowledging an upside risk in the event of prolonged rupee volatility.
Economic Growth The GDP Growth is going to dip below 5% and the PM of India is out of touch of the Real Economic Situation and continues his empty Talk of Higher Growth without any policies or reforms that have been Paralyzed for over 3 Years now.