For the week ending 7 Mar -09, headline inflation (wholesale price index, WPI) dropped to 0.44%. It was below our (0.93%) and consensus’ (0.88%) estimates.
Fuel deflation fell further to -5.95%, pushed lower by the fall in electricity prices.
Primary article prices fall first time. Primary article prices moved down due to
the fall in food grains (cereals and pulses), vegetables, fruits and nonfood articles. Though food prices softened, food inflation is still relatively high.
Manufactured prices, no change. All the major components, such as food products, edible oils, transport equipment, metallic and nonmetallic products, did not change. Chemicals and chemical products witnessed further softening.
Slow growth and approaching deflation increases the possibility of a rate cut soon. We expect the LAF (liquidity adjustment facility) corridor to go to the 2.5-4% range by end 2009.