The January 2012 wholesale price index (WPI) inflation came in at 6.55 per cent, down by 92 basis points when compared to the previous month. The WPI Inflation is down by 292 basis points if we compare it with a similar month the previous year. For the month of November 2011 the inflation is further revised to 9.46 per cent against the earlier provisional number of 9.11 per cent.
The primary article inflation (which has 20.12 per cent weightage) came in at 2.25 per cent in the month of January 2012 and the non-food article inflation stood at 0.55 per cent while that for food articles showed a negative growth of -0.52 per cent. Among the food articles, the prices of vegetables, onion and potatoes have slid down.
Fuel and power inflation (with weightage of 14.91 per cent) showed a contraction of 70 basis points to 14.21 per cent. This has remained in the range of 13 to 15.50 per cent over the past six months and doesn’t show signs of coming down significantly. As per media reports, petrol prices are expected to rise by Rs 3 per litre in the next month which will further lead to an upward move in fuel inflation.
The manufactured products’ inflation (which has 64.97 per cent weightage) also showed some signs of contraction. It decreased by 92 basis points to 6.49 for the month of January 2012 on a MoM basis. In this category, except for leather and leather products (inflation increased from 2.9 to 6.49 per cent), all the other products like sugar, edible oil, food products, chemicals and its by-products, cotton textiles, basic metals, iron and semis, etc, inflation eased which helped the broader index to see some cooling off.
Meanwhile, inflation is definitely showing signs of cooling off, evident from the fact that from the near double-digit inflation in the past six months it has seen a gradual fall. The RBI projection for inflation is 7 per cent for FY12. The IIP data for the month of December 2011 came in at a mere 1.8 per cent and with the GDP growth revised downwards by 60 basis points to 7 per cent for FY12 in the third quarter, we expect the RBI to take some steps to fuel growth in the economy in its next monetary review.
We anticipate the RBI to initiate reversal in the interest rate cycle at its policy review on March 15. The central bank may again cut back the CRR or may cut the repo rates, which would really help to infuse fresh impetus to market sentiments.