For the week ending 19 Sep ’09, headline inflation (the wholesale price index, WPI) stood at 0.83%. Inflation for the week ending 25 Jul-09 was revised to -0.71% (from -1.58%).
In a shocking move, all major constituents of the WPI index – primary, fuel and manufacturing products – registered a w-o-w rise.
Government Blind Spectator to Food Inflation – Food inflation continues to move up. Price rises were noticeable for vegetables, egg, meat and fish. Food grains, pulses and fruit prices witnessed a w-o-w fall.
India’s monetary authorities face a quandary. On the one hand, signals for monetary tightening are everywhere: strong pick-up in WPI inflation, double digit CPI inflation and significant liquidity overhang. On the other, a subdued global growth outlook, lack of strong domestic growth and the government’s large market borrowing program point towards maintaining an easy monetary policy. While we expect the RBI to start tightening much ahead of the G-3 (Euro area, Japan and the US), the tightening is unlikely to start before late FY10. In the meanwhile, in a bid to manage inflationary expectations, the RBI’s communications are likely to turn increasingly hawkish