May WPI inflation came in at 10.2% yoy, a big uptick from the 9.6% yoy in April. The reading was significantly higher than the consensus expectation of 9.6% yoy. The March inflation reading was also revised up to 11.0% yoy compared to 9.9% yoy earlier. On a sequential basis, headline inflation ticked up 1.5% mom s.a., compared to the 0.8% mom decline in April.
Core inflation (excluding food and fuel) rose sharply by 2.7% mom after a decline in March. It also trended higher on a yoy basis (8% yoy in May vs. 6.2% yoy in April). Metal prices continued to increase (2.1% mom in May following a 3.6% mom increase in April). There was a significant step change in sugarcane prices (53.2% yoy in May vs. 2.3% yoy in April) but partly due to infrequent revisions in the index. On the other hand, food prices fell 0.3% mom, marking a fourth month of moderation as the winter crop came on board. We expect pressure on core inflation to remain elevated due to strong activity offsetting the relief from lower food prices.
Agflation will likely come off if the sowing month of July gets normal rains. Falling sugar (and likely, cotton) prices should make up for the 5-10% hikes in government ‘support’ prices for rice, etc. Second, the recovery in global metal prices has been transmitted to domestic metal prices. In fact, steel prices are actually correcting. Third, corporates have also passed on the 2% hike in excise
duties in the Budget and administered fertilizer and oil prices.
The RBI & India Govt is clueless and is toothless and spineless.
The Govt is continuing its rampant, non-sense approach of putting free money in the hands of the lazy man. It is funding this by printing currency notes. Shining examples of these self cheating scheme is NREGA. The implementation of this noble scheme is woeful.
Due to higher value currency being introduced, corruption has increased in value terms and is being passed on to the consumer resulting in high prices.
The RBI has to just devalue all currencies exept 50 Rs and 10 Rs notes. and raise interest rate upto a level where interest rates=inflation rates. otherwise it is like drugging the economy. The economy is under false hope thinking that it is growing at 7 % but inflation is 16 % that means the economy is shrinking by 9 %. The reason for this is foreign players are allowed to rob local money from share markets due to their sheer wealth quantity which is one of the important avenues available to the middle class to fight inflation.
Interest rate has to be increased to 12%. Increase imports of essential items. Devalue currency to max 50 Rs notes. All will be OK
Better for govt to think of logical steps than populist self defeating schemes.