WPI inflation at 6.10%, a six-month high in August 2013 - Angel Broking

The Wholesale Price Index (WPI) based inflation touched a six-month high at 6.10% for August 2013 as compared to 5.79% in the previous month and 8.01% in August 2012. Higher food and fuel inflation are seen to be the main drivers of the pick-up in inflation.

Primary articles inflation has inched up to 11.72% in August 2013 as compared to 8.99% in July 2013 and 11.23% in the corresponding period of the previous year. This can be attributed to the rise in food inflation which came in at 18.2%, a 3-year high as compared to 11.9% in the previous month. The rise in prices of perishables like vegetables & fruits and eggs, meat & fish has put pressure on food inflation. In particular inflation in vegetables has come in at 77.81% as against 10.08% in August 2012. Amongst food grains, inflation in cereals remained high at 14.35% as compared to 17.17% in July 2013 while pulses remained in deflation territory for the second consecutive month declining by 14.40%, aided by a high base.

Other constituents of primary articles, ie non-food articles, witnessed deceleration in inflation during August 2013 to 1.06% from 5.51% in the previous month while minerals remained in deflationary territory and declined by 7.21% as compared to 2.38% in July 2013.

Inflation in fuel and power picked up for the fourth straight month reflecting higher petrol, diesel and ATF prices. The overall fuel and power index witnessed doubledigit inflation at 11.34% as compared to 11.31% in the previous month and 8.74% in August 2012. The mineral oils index surged to 15.81% in August 2013 from 5.62% in the corresponding period of the previous year, similar to 16.01% in July 2013, owing mainly to rise in prices of administered fuels like diesel and LPG. The rise in international oil prices has made India's basket of crude dearer. Further we believe that the expected increase in domestic diesel prices to reduce underrecoveries on fuel is likely to push up the fuel index further in the near-term. The release of suppressed inflation is also likely to impact overall headline inflation through second-round effects.

Manufactured articles inflation came in at a muted 1.90% in August 2013, almost a 4-year low. It compares with 2.81% in July 2013 and 6.36% in the corresponding period of the previous year. Manufactured food inflation decelerated for the sixth straight month and eased sharply to 1.70% from 5.04% in July 2013. Core (non-food, non-fuel) inflation also eased to 2.0% from 2.3% during July 2013 and 5.8% in August 2012 as it continues to reflect weak pricing power.

As far as the RBI's monetary policy is concerned, we know that macro-stability has taken precedence over growth considerations. In this context, we believe that the outcome of the U.S Fed's FOMC meeting on September 17-18 and its subsequent impact on domestic capital flows and exchange rate movements are likely to be important determinants for domestic monetary policy action.

Source : Equity Bulls

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