After mellowing down in the month of November 2010 to 7.48%, the Wholesale Price Index (WPI) jumped to 8.43% in December 2010. This sudden spurt in the headline inflation was due to the upward trend in prices of certain food and non-food items.
As per the official WPI data, prices of prices of primary articles; food, non-food articles and minerals shot up by 16.46% on an annual basis. Manufactured goods too became expensive by 4.46% on an annual basis. Also, during the month of December 2010 fuel and power prices scaled up by 11.19%.
Considering the northbound journey of the headline inflation, the Prime Minister's Economic Advisory Council's (PMEAC) Chairman said that the WPI for the fiscal ending March 2011 may end up higher at 7.00%. Also now the Finance Secretary - Mr. Ashok Chawla too expects the WPI for the fiscal ending March 2011 to be at 6.5%.
PersonalFN.com View:
We believe that the headline inflation would still remain above the comfort levels of the RBI, and is expected to remain stiff as the impact of spiralling food and crude oil prices would start creeping in the headline WPI inflation. As an effect of this we may see RBI increasing policy rates by 25 basis points in third quarter review of monetary policy 2010-11 (scheduled on January 25, 2011), despite the drop in the Index of Industrial Production (IIP) to 2.7% (for the month of November 2010).
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