India as a Country for Business

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Inflation - Indian Economy

Fall in Indian Inflation continues, positive signs are seen in Future: Here are the highlights

Hits six-month low. For the week ending 8 Nov ’08, headline
(wholesale price index, WPI) inflation fell to 8.90% from 8.98% last
week, slightly ahead of our (9.04%) and the market’s estimates
(9.00%).

Food prices stay firm. The overall index witnessed a fall, but
primary articles witnessed a jump due to high food articles like pulses,
vegetables, fruits and oilseeds. Non-food articles and minerals also
witnessed a spike.

Fuel and manufactured articles fall. The fuel index continues to
fall on the back of non-administered oil prices. Manufactured articles
witnessed a fall due to food products, edible oils, basic metals,
chemicals and leather products.

Inflation outlook positive. The inflation scare is almost over and we
expect the softening trend to continue and inflation to be ~8% by
end 2008 and between 2% and 4% by end-FY09. As mentioned in
our earlier reports, deflation in India between Jun and Aug ’09 looks
likely.

Fall to provide cushion for RBI. As inflation falls, it provides the
RBI a cushion to ease monetary policy to boost growth momentum.
We expect a 100-150bps cut in the repo rate and the CRR in FY09.
We feel that the repo rate cut would be accompanied by a cut in the
reverse repo rate as well.
The information is derived from the research note from Anand Rathi