The India Inflation Report (February 2012)

Today is Policy day, with the India Economic Survey following the Bank Credit Policy annoucement before Budget day tomorrow. Policy rates aree likely unchanged at all time highs as CRR cuts mitigate tight liquidity and RBI MLF borrowing worth more than INR 1.2 tln overnight ( 2.5% of the Indian Bank Deposits overall and 0.75% immediately provided by CRR likely having a cascading effect will more than ease it in normal times, but some of it becomes a factor of bearish expectations esp with hiccups on an intermediate top in the markets)

On the inflation dots, a 6.95% was the overall WPI rate before the new CPI series reports next week. CPI was 7.5% last month and WPI 6.5%. A rise in CPI is unlikely  and any rise next week will reallly weaken india’s case internationally more than just the case for rate cut this afternoon, which is an unlikely event

Non Food manufactured Inflation in the Primary Articless basket and Basic goods are down to 5.7% and inequities in Agri supplies make the food part very weak if Food inflation indeed goes down. Thenature of the beast demands that Policy and reporm be supported by a higher consistent level of food inflation after the base effect wears off. Fuel inflation has not been showing in this release and is likely near the 14% rate it was running.

Of course Shubada and YES have booked their additional goodwill and incremental deposits by AM today as no one will consider rate cut from here for today till after the gloom and doom emerging from the Economic survey is shored up. 

Est. economists feel the non food price levels being up in 7 of the 11 baskets are the hint for Oil to pose a threat because of the multiplication factor from producers passi g on prices but OIl threat has subsided and any further threat in this or the next quarter are likely to leave India to destability unless price increases are passed on in toto to industry and retail with a INR 3.5 Tln subsidy bill set to increase otherwise. (With a reduced threat of Oil, Oil’s minimum has been redefined however near the $115 levels in Brent)

WSJ mentions the price of dairy and poultry on the way to higher inflation with th e sub index making a comeback to 20% as vegetables and cereals continue on low and/or negative rates

Advance GDP estimates were duly revised upward earlier this week to INR 52 Tln. The Economic Survey later in the day notes the pitfalls and unevenness of welfare led growth this year as India battles the Fiscal bill and a divided polity. 


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