Jan inflation expected at around 8.35%

The wholesale price index (WPI) for January is expected to rise further driven by food inflation and rising fuel inflation.
As per a median forecast of eight economists done by DNA Money, the January inflation number, expected to be announced Monday, is expected to come at 8.35%.

 “Inflation is rising and is driven by high food prices and non-administered fuel prices,” said Rupa Rege-Nitsure, chief economist at Bank of Baroda.

The monthly wholesale prices index (WPI) number for December showed inflation touched 7.31%, up with a jerk from November’s 4.78%.

According to a statement released by the Ministry of Commerce and Industry on Thursday, the index measuring wholesale prices of lentils, rice, vegetables and other food articles rose 17.94% in the week to January 30 from a year earlier, after a 17.56% gain in the previous week. During the same period, the index for fuel group rose 1.2% due to higher prices of non-coking coal (15%) and coking coal (11%).

However, the high food inflation may not trigger a hike in policy rates at least for the time being.

“The Reserve Bank of India is doing what they can and WPI is not the only thing to be considered for hiking rates. So we may have to take into account high food inflation for another two months,” said D K Joshi, principal economist at Crisil.

RBI governor D Subbarao said in Mumbai on Saturday that the RBI considers all indices of inflation for policy making and not just the WPI.

To mitigate the impact of high inflation the RBI has already hiked the cash reserve ratio by 75 basis points to 5.75% in the policy review held on January 29.

On Thursday, RBI deputy governor Subir Gokarn said in New Delhi that the economy should not expect any action between now and the next monetary policy announcement in April “unless there is a completely unanticipated event.”

As a result, economists expect a hike in policy rates again in April.
“We expect a 25 basis points hike each in repo rate and reverse repo rate in April. Along with this a CRR hike of 25 to 50 basis points can also be expected,” Joshi said.

This is because the WPI may touch a double digit soon and then RBI will have to intervene again.

“It is expected that the WPI may touch 10% by March or April,” said Siddhartha Sanyal, economist at Edelweiss Capital.