WPI Surprises Streets At 6.62% For January 2013

The much-awaited Wholesale Price Index (WPI) Inflation numbers for the month of January 2013 came in surprisingly lower at 6.62%, well below the streets expectations of 7%. WPI for the month of December 2012 stood at 7.18%. Prima facing numbers helped the broader indices to move higher, turning their wings from red to green.

For a reference, WPI is showing signs of cooling since the past three to four months. From 7.32% in the month of October 2012 to 6.62% in January 2013, it reduced almost by 70 basis points in the past four months. The number is below the RBI estimate of keeping the WPI below 6.8% till March 2013. This is probably first time in this fiscal that the number has come in the comfort zone of RBI.

Earlier this week, the Index of Industrial Production (IIP) number for the month of December 2012 came in at -0.6%, showing signs of growth slowing down further. There is also anxiety about the March Quarter Monetary Policy (scheduled to be announced on March 19, 2013), which is expected to see a further rate cut, primarily as both WPI (softening) and IIP (declining) are moving southwards.

We are of the opinion that one should check out the next month’s numbers on which the final call would be taken by the apex institution. IIP for the month of January 2013 is expected to be due on March 2012 and WPI for the month of February 2013 is expected on March 14, 2013. And hence, it is too early to say whether the RBI would slash the rates in the next month. We even hope that the numbers, going ahead, are not revised upwards, since that would have a negative impact on the markets and the economy. Nevertheless, we would be updating our readers on the same and hence request you to kindly visit our website regularly.

We believe that even though WPI is softening, the CPI is moving northwards. One should note that the CPI number is more important to the common man as it is considered to be the ground level price of various products and food articles. If the RBI reduces its key rates, we suppose that banks would transfer this benefit to its customers, and deposits’ and loans’ rate would gradually be lowered by most of banks. For the existing borrowers, it would be a good sign as its Equated Monthly Instalments (EMI) payment would be lower. However, the depositors would also be getting a lower rate on their deposits.

We believe that currently the real rate of return is marginally negative, which is expected to widen further for the common man as deposits’ rate would be lowered and CPI Inflation would be higher in the coming days.