9-mth high CPI may push RBI to wait for WPI data: Expert

In the macro data released on Thursday, retail inflation soared to a nine-month high of 11.24 percent for November and factory output shrank 1.8 percent for October. The poor data leaves no room for any doubt that the Reserve Bank will raise key rates in its policy next week. CNBC-TV18’s Latha Venkatesh decodes the numbers and also states the possibilities for the RBI going ahead.

Below is the edited transcript of her analysis on the channel

Q: CPI for Nov is at 11.24 percent. How bad is that?

A: That’s a bad number. It will force workers to ask for more wages, encourage producers to pass on prices. Expectations can come unhinged. So an RBI has to show that it is in control

Q: Anything do at all about this CPI number?

A: Actually it is largely food driven. Food is up 14.7 percent; and within that vegetables are up 61 percent. Both have definitely cooled in December. The non-food, non-fuel inflation is up just 8 percent, down from 8.1 percent in October and 8.4 percent in September. RBI governor can point to this and say with confidence that he expects food and non-food inflation to have peaked out in November. If he says this with confidence, he can perhaps pull through without a rate hike and wait for one more month to see if things are actually improving.

Q: What about IIP or industrial output numbers for October?

A: It has contracted by 1.8 percent, but again I would look to the positives. October 2012 was a particularly strong month. So off a large base, October 2013 looks bad. Actually compared to September 2013 (month ago), the October ouput numbers are not so bad. Also expectations ran low.

Q: What may RBI do?

A: RBI is worried about growth, but it can’t do much about it. All central bankers believe they have a bigger role in inflation control. Now RBI governor can see the falling non-food inflation and assure the country, things are improving and wait. Alternately he can fear that unless he shows RBI will go hammer and tongs, producers and workers will start pushing up prices and wages into a spiral. Not sure how he will react. May be he will simply wait for the wholesale inflation that comes next week and then take a call.

Q: Can the government do any thing?

A: Yes. It can off load foodgrains from its warehouses. It can break the stranglehold that the APMCs have over vegetables by abolishing the Act. But it is a paralysed government fearing that anything they do will be seen as a sell out to retailers etc. So the rot deepens.