Higher WPI For November 2013 Raises Rate Hike Expectations

The Wholesale Price Index (WPI) data for the month of November 2013 came in at 7.52% as against 7% reported in October this year. This was much higher than the street’s estimate of 7.1%. The WPI reported for this month is the highest since September 2012. What’s more, the WPI figures for September 2013 has also been revised upwards to 7.05% as against 6.46% as announced earlier.

The primary articles’ inflation for November went up to 15.92% from 14.68% in October. Manufactured products’ inflation rose to 2.64% versus 2.5% in October, and fuel & power inflation was also higher at 11.08% from the previous month’s figure of 10.33%. Food inflation rose to 19.93% versus 18.19% in October. None of these numbers are promising.

The WPI and CPI coming in at the higher levels have added to the noise about the RBI being likely to go ahead with a rate hike for the third consecutive time when it meets this week on December 18.

Although the IIP numbers had dipped, the RBI Governor had clearly indicated last week that controlling inflation is of top priority even at the cost of forgoing some growth. The markets have already discounted a 25 basis points rate hike, but may slide further if the governor goes ahead with a 50 basis points hike.