Inflation, measured by the Wholesale Price Index (WPI), rose to 7.55 per cent in August, higher than 6.87 per cent in July. It was widely expected to be at 7 per cent, surprising experts as it dims hopes of a rate cut by the Reserve Bank of India in its monetary policy review on September 17.
Here is what expects have to say.
A Prasanna, Sr VP, ICICI Securities PD
“Yes it was a big surprise. There was some shock expected on fuel. But Manufacturing has grown up, that is a bit of shock as the price rise is continuing unabated.
“Yes there has been a rise in almost all segments. But the very fact that prices continue to rise month after month show that there is an inherent inflation pressure on the economy.
“With price hikes announced today, the headline will definitely go up next month.”
Montek Singh Ahluwalia, Deputy Chairman of Planning Commission:
Inflation is really the consequence of macro imbalances. If you are pushing for too much investment and you not have the savings needed to support it, you are going to generate sectoral imbalances that will lead to inflation. It could also be triggered if there is a global pressure on growth.
We do want an acceleration of growth. I think what the central messages that the plan document is putting out is that right now, we are in a global situation drought. This is a global phenomenon. One of the BRIC countries – Brazil has lowered its growth rate to 2 per cent. I have been quoted as saying that growth could be as low as 5 per cent. It could be better.
Plan document says that we need to take tough decisions, and the diesel price hike yesterday was a tough decision. We can reach 8.2 per cent and it can be inclusive.
Aditi Nayar, Senior Economist, ICRA
“Higher-than-expected headline inflation of 7.55% for August 2012, similar to the trend in April-June 2012, as well as the pickup in core inflation confirm our expectation that the Central Bank will maintain the policy rate and the CRR in the mid-quarter policy review.
“Food inflation eased in August 2012 relative to the double-digit inflation in the previous five months, on the back of a continued correction in vegetable prices. However, a number of agricultural commodities such as cereals, pulses, fibres, sugar, oilseeds and edible oil displayed a month-on-month increase in prices, partly reflecting the monsoon-related concerns that prevailed in August. While such concerns have abated to an extent in recent weeks, the first and second round impact of the diesel price hike is expected to push WPI inflation above 8 per cent in October 2012.”
Indranil Phan, Chief Economist, Kotak Mahindra Bank
“We were expecting the core to pick up. Therefore our estimates are playing in the right fashion. Yes the “headline number is a big surprise on the higher side; we were expecting it to be at 7 per cent.
I think what is really worrisome is that the QE3 will be negative for India in terms of commodity side, the oil side. The commodity index has been actually rising in anticipation of a QE3. This shouldn’t be good news for the manufacturing. Brent has gone up to $105.”
Rahul Bajoria, Regional Economist, Barclays Capital
“In manufacturing, the bulk of increase came from food products which is not a big surprise, considering food prices have been risign on a fast pace. I am not saying that the inflation numbers are something to be cheerful about. But it needs to be put in context that they are not very very bad numbers.”
Here is what expects have to say.
A Prasanna, Sr VP, ICICI Securities PD
“Yes it was a big surprise. There was some shock expected on fuel. But Manufacturing has grown up, that is a bit of shock as the price rise is continuing unabated.
“Yes there has been a rise in almost all segments. But the very fact that prices continue to rise month after month show that there is an inherent inflation pressure on the economy.
“With price hikes announced today, the headline will definitely go up next month.”
Montek Singh Ahluwalia, Deputy Chairman of Planning Commission:
Inflation is really the consequence of macro imbalances. If you are pushing for too much investment and you not have the savings needed to support it, you are going to generate sectoral imbalances that will lead to inflation. It could also be triggered if there is a global pressure on growth.
We do want an acceleration of growth. I think what the central messages that the plan document is putting out is that right now, we are in a global situation drought. This is a global phenomenon. One of the BRIC countries – Brazil has lowered its growth rate to 2 per cent. I have been quoted as saying that growth could be as low as 5 per cent. It could be better.
Plan document says that we need to take tough decisions, and the diesel price hike yesterday was a tough decision. We can reach 8.2 per cent and it can be inclusive.
Aditi Nayar, Senior Economist, ICRA
“Higher-than-expected headline inflation of 7.55% for August 2012, similar to the trend in April-June 2012, as well as the pickup in core inflation confirm our expectation that the Central Bank will maintain the policy rate and the CRR in the mid-quarter policy review.
“Food inflation eased in August 2012 relative to the double-digit inflation in the previous five months, on the back of a continued correction in vegetable prices. However, a number of agricultural commodities such as cereals, pulses, fibres, sugar, oilseeds and edible oil displayed a month-on-month increase in prices, partly reflecting the monsoon-related concerns that prevailed in August. While such concerns have abated to an extent in recent weeks, the first and second round impact of the diesel price hike is expected to push WPI inflation above 8 per cent in October 2012.”
Indranil Phan, Chief Economist, Kotak Mahindra Bank
“We were expecting the core to pick up. Therefore our estimates are playing in the right fashion. Yes the “headline number is a big surprise on the higher side; we were expecting it to be at 7 per cent.
I think what is really worrisome is that the QE3 will be negative for India in terms of commodity side, the oil side. The commodity index has been actually rising in anticipation of a QE3. This shouldn’t be good news for the manufacturing. Brent has gone up to $105.”
Rahul Bajoria, Regional Economist, Barclays Capital
“In manufacturing, the bulk of increase came from food products which is not a big surprise, considering food prices have been risign on a fast pace. I am not saying that the inflation numbers are something to be cheerful about. But it needs to be put in context that they are not very very bad numbers.”
