Higher July headline inflation rate expected in India
Following results of rising CPI inflation.
Amid the release of India's July WPI inflation results, headline inflation is expected to rise 5.5%
YoY (market: 5.1%) from 5.4% the month before.
According to a research note from DBS, CPI inflation released earlier in the week rose 8.0% YoY from the revised June’s 7.5% on higher vegetable price index.
The same factor is likely to keep the WPI reading elevated, while the fuel index benefits from stable rupee and commodity prices.
Here’s more from DBS:
At the same time, the PMI-manufacturing price sub-component signaled at pipeline risks as input prices rose sharply in July.
Improving business conditions might prompt manufacturers to pass on the higher costs to end-consumers.
As it stands, the manufacturing WPI index quickened marginally to 3.6% YoY in the Jun14 quarter, from 3.0% last year.
Core WPI (non-food manufacturing inflation) has also picked steam to 3.9% from 2.9% last year, with an anticipated recovery in aggregate demand likely to bring demand-pull forces back to the table.
Against this backdrop, the Reserve Bank of India (RBI) is expected to maintain a cautious stance and remain on prolonged pause on rates in FY15.
In comments yesterday, RBI Governor Raghuram Rajan stressed that while high rates were painful in the short-term, it was the ideal policy stance of the long-term to contain inflation.