September WPI inflation came in at 8.6% yoy, higher than the 8.5% yoy in August. This was higher than the consensus expectation of 8.5% yoy. Similar to past trends, July inflation was revised up to 10.3% from 9.8% reported earlier. Going forward, while we expect the base effect to result in a moderation in the numbers to 6% by year end.
Primary articles which inched up to 17.5% from 15.8% levels last month. This was due to both food (mainly fruits and milk) and non-food articles which rose 15.7% and 18.2% respectively. Fuel index which moderated to 11.1% from 12.5% last month. A detailed
break-up is still not available, but as mentioned, this component could be at risk in the coming months.
Manufactured products slowed marginally to 4.6% from 4.8% last month with food products decelerating sharply to 2.8% while non-food manufactured product inflation remained unchanged at 4.9%YoY. Minerals were up 28.5% in Sept from 23.8% last month.
Analysts forecast that the Reserve Bank of India (RBI) will hike policy rates by another 75-100 bp by end-June 2011, due to high current and fiscal deficits, still loose financial conditions, rising asset prices, and inflation above the RBI’s target range.