OTHER GROUP COMPANIES
market

May WPI inflation at 4.87%, within RBI comfort level

Depreciating rupee and pressure on current account deficit may prevent RBI from cutting policy rates

June 14, 2013 1:01 IST | India Infoline News Service
The wholesale price index (WPI), India's main inflation measure, slowed for a fourth straight month in May to 4.7% from a year earlier. However, depreciating rupee and pressure on current account deficit (CAD) may prevent Reserve Bank of India (RBI) from cutting policy rates.

Analysts had expected Indian WPI to fall to 4.87% last month.

The initial print for WPI inflation is slightly lower than our expectation of 4.8%, partly reflecting the surprising decline in the diesel sub-index in month-on-month terms despite the price hikes undertaken in May 2013, Aditi Nayar, Senior Economist, ICRA, said.

A weak rupee makes imports expensive, increasing inflationary pressure and also prompts foreign investors to sell Indian assets as their dollar returns are affected this in turn increasing the difficulty of financing the current account deficit.

The WPI rose an annual 4.89% in April. This is the second month in a row that inflation remained in RBI's comfort zone of 5%.

The sharper-than-expected uptick in food inflation would moderate the optimism that has followed the encouraging progress of the monsoon so far. Moreover, the considerable rupee depreciation is expected to boost prices of imported products in the near term, posing a concern for the RBI. Higher under-recoveries of diesel have also worsened the element of suppressed inflation in the economy, Nayar added.

The reading for March was revised to 5.65% from 5.96%, data released by the Ministry of Commerce and Industry on Friday showed.

WPI food inflation rose to 8.25% in May from 6.08% as rice, onions and non-vegetarian items continued to see price pressures.

Inflation in petrol stood at (-) 4.43% against 3.04% in the previous month.

Core inflation declined to 2.4% in May from 2.9% the previous month on account of slowing global prices of iron ore and steel.

Primary articles inflation increased just 0.6% to 229.3 (provisional) from 228.0 (provisional) for the previous month.

Manufactured products inflation fell to 3.11% as against 3.41% last month. The commodities index is up 0.1% month-on-month, while food articles inflation came in at 8.25% as against 6.08% (M-o-M).

The RBI will release the next Mid-Quarter Review of Monetary Policy 2013-14 on Monday. The central bank has already cut its lending rate three times this year.

The CAD widened to a record 6.7% of gross domestic product in the December quarter. For the full fiscal, it is expected to ease to 5%.

Consumer price inflation (CPI) for May was marginally lower at 9.31% as against 9.39% in April. May provisional inflation rates for rural and urban areas stands at 8.98% and 9.65%, respectively.

With mounting concerns related to the size and financing of the current account deficit in Q1 FY14, due to rise in gold imports and recent FII outflows, we expect the RBI to desist from monetary easing in the upcoming policy review, in spite of the persistent weakness in industrial growth, Nayar inferred.

OPEN A DEMAT ACCOUNT & Get
FREE Benefits Worth 5,000

FEATURED ARTICLE

BLOGS

Open Demat Account

  • 0

    Per Order for ETF & Mutual Funds Brokerage

  • 20

    Per Order for Delivery, Intraday, F&O, Currency & Commodity