Today?s WPI release posed a huge positive surprise with a print of 3.74%, much lower than the July reading of 5.19% and also lower than the market expectations.
A significant portion of this softening trend was due to the base effect factor from the previous year, especially with respect to food products. Core WPI inflation was also lower for August at 3.25% from 3.45% of the previous month.
While the inflation metric both from the CPI and the WPI basis were better, it has likely failed to provide for any increased expectation of a rate cutting cycle by the RBI in the immediate future as the RBI has now set its eye on the 6% CPI target for January 2016.
For January 2015 we now estimate the Headline CPI at 7.7%, just a shade below the 8% mark and might not be too comforting for the RBI in its attempt to reach the 6% target by January 2016.
By Indranil Pan, Chief Economist, Kotak Mahindra Bank