Inflation inches up to 8.3% - Motilal Oswal

ECOSCOPE: Feb-11 inflation inches up to 8.3%; Spread to manufacturing sector is a risk to RBI tightening

Government data release pegged Feb-11 WPI inflation at 8.3% much higher than the expectations (MOSL 7.7%; Street 7.8%).

Rise in inflation was almost fully explained by sudden hardening of mfg inflation, even as primary & food price inflation softened & fuel inflation held steady.

Government also revised the Dec-10 inflation data to 9.4% from 8.4% estimated earlier. We may recall that Nov-10 inflation data was revised upwards to 8.1%.

The inflationary build-up (i.e. YTDFY11 end-period inflation over Mar-10) inched up to 7.5%, much above the RBI's end-March inflation projection of 7%.

We now place our March-end FY11 estimate at 7.8% and the full year FY11 estimate at 9.1%. While we expect FY12 inflation to moderate to 6.5%, it may take longer for inflation to come within the tolerable limit of 5% set by RBI. In its March 17 policy, we expect RBI to hike repo and reverse repo rate by 25bp to 6.75% and 5.75%, respectively. We expect further 75bp increase in repo and reverse repo rates during FY12, much of which may be effected in 1H itself.

Source : Equity Bulls

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