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Charts & Analysis

Wholesale Price Inflation at 6.1% for Aug 2013

Wholesale Price Index (WPI) based inflation for August 2013 was at +6.1%, an increase over the previous month’s 5.79%, the highest since Feb 2013.

Monthly WPI Historical Chart

This is now a 1.5% increase in inflation over the May number of 4.58%.

Inflation revisions: June Revised to 5%+

WPI Inflation for June 2013, which was first announced at 4.86%, is now up to 5.16%. This is a large revision, and the first upward one since February.

Inflation Revisions

Components: Food and Fuel are 11%+, Manufactured Goods Still Benign

Inflation Components

Primary articles (mainly food) is now over 11.7% over last year, a massive increase. Fuel inflation remains at 11.34%. Both must be up big because of rupee depreciation, but also because these prices fluctuate often due to supply etc.

Manufactured goods is a story that is difficult to believe, because everything else shows prices going only up. A 1.90% print sounds like they have decided not to update prices at all.

WPI and CPI – the chasm narrows, but is still big

 

WPI vs CPI

The red line is what you and I are seeing.

The blue line is what the government and RBI *think* we are seeing.

Which apparently, is not eye-to-eye.

Impact

  • Raghuram Rajan has said he’ll focus on CPI. That will mean raising rates. Will he raise the 0.25% or more? My feeling is that the repo rate doesn’t matter anymore – overnight rates are already 10.5% and higher. So a marginal increase of less than 1% won’t make a huge difference to us.
  • A high WPI will eat into GDP growth numbers even more. IF we get a sub-4% print, the economy is looking
  • The US might taper but not as much as one assumes. So if the rupee appreciates that’s one less fear of foreigners exiting, which will help the rupee.
  • The rupee is at 62.73, which is a good sign for September.

 

We are in HORRIBLE shape as an economy. We really need to fix inflation and bring it down to 3% or lesser, and that needs to be our only priority, growth be damned. Even if we induce a recession by doing so. My question for Friday: Will Rajan Do A Volcker?

  • mangoman says:

    Stagflation is here.
    Great time to RBI watchers. Raghu has to rise to the occasion.
    Deepak you are spot on about the volcker thing. Let us hope he Raghu get into history books or politicians payment sheets.

  • mangoman says:

    Basically if we prick the RE bubble by raising the interest rates many banks will fail.
    The skeletons which are hidden in the closet will come out in the open for many state run banks too.
    Banks are drawing in MSF even I guess to pay the staff salary.
    So RBI is also an interested party not to prick the bubble and hence raising rates may not happen.

  • Leo says:

    for once u wrote well Deepak shenoy raising rates would have been the right thing to do it does 2 things attracts capital second it kills mad borrowing (inflation)
    Reward the savers
    I am hoping raghuram rajan wont be raghuram ravan …raise rates 50 bps that will prick these Real estate gamblers …bring justice to the system

  • Leo says:

    fubar if i were RBi would raise rates till inflation dies …see what volcker did
    rates should be 14 15% to tackle this huge money supply ..volcker did it …in those days there was a sucha huge speculation of dollor collapse///
    Faith has to be restored and gamblers in real estae should be nailed on the wall
    CPi is much more than that . id ont belive the reported numbers …see your 2 rs coing what it can buy 5 bucks cant buy even coffee .In 2003 a cup of coffee was like 3 4 bucks not 17 to 20 bucks (dont think of coffee day please)
    this is crazy inflation.Hope raghuram rajan doesnt become raghuram ravan…if he doesnt
    Rates in US would rise and then u will be raising rates ina chaotic manner

  • Satish Vijayan says:

    India is largely still a cash based economy. Agri items are primarily distributed on a cash and carry basis.
    Increasing the cost of funding would drive up food inflation dramatically.
    Secondly working capital / interest costs are already ruinous. Our effective tax rate is close to 40% (IT + Service tax). It would devastate industry if interest rates are increased.
    WE’d need to find a solution that would allow us to reduce rates while managing inflation = oh wait, I have a great idea, how about we stop printing notes to fund the various subsidies? Or maybe we could go after the black money in the economy more effectively? Well, probably not, its hard to get a pig to slaughter itself.
    In any case, increasing interest rates will devastate industry. Not the answer.