 Inflation unchanged at 12.14%; experts see it peaking aheadPublished on Thu, Sep 25, 2008 at 18:00 | Source : CNBC-TV18 Updated at Fri, Sep 26, 2008 at 10:29 Like this story, share it with millions of investors on M3
Arun Kaul, Chief General Manager, PNB said that there is no increase in the wholesale price index after a long time, therefore bond market would certainly look at it very positively along with the fact that crude has come down. What will be RBI's action on October 24? Kaul said that inflation numbers are flat but are still outside the comfort level of RBI. "Under these conditions, I don't think RBI is going to change their monetary policy stance although they may not introduce any fresh measures." He feels that the worst for inflation is passed considering that RBI may not hike the repo rate or CRR.
Will there be an inflation shock next month? Kaul sees an inflation shock next month. "If you look at the last year whole sale price index figures, there is a wide variation in the next two-three weeks, which could lead to situation where the base came down. On a year-on-year basis, inflation could marginally move up by one or two weeks but that possibility of shock is very much there."
Baruah sees very sharp seasonal variations around this time of the year. "One could see a week where fruit and vegetable and things like milk prices take up very sharply and that combined with an adverse base effect could take inflation to 12.7-12.8%." He believes that the peak is very much in sight and it is likely to be sub-13% sometime in October-November, which is indeed very good news. "There is some sign of stability in the numbers. Inflation ticked up last week largely because of fruit and vegetable prices, which gives me some sense of hope because these things are prone to large seasonal and temporary variations. Core inflation seems to be stabilizing a bit." Will there be a bond rally? Kaul said that the bond market came down to as low as 8.02% and went back to 8.60% since last couple of weeks because liquidity was a very serious concern and oil went up. "Liquidity was a very serious concern and currency was rapidly depreciating. We noticed the market opening at 8.57% today morning then went up to 8.60% and again came down to 8.56%. With oil coming down, there is a great comfort level in the market. We do expect liquidity to improve in the month of October and once liquidity improves there is a possibility of the bond market improving and sentiment turning positive thereafter."
On manufactured products numbers coming down: Baruah feels that manufactured product inflation is broadly sort of a proxy for core inflation. "If you go by conventional theory is the bit that is amenable to monetary policy manipulation and if that is moderating the case for tighter monetary policy is diluted further. Instead of looking at headline inflation, I would tend to focus more on manufacturing or core inflation as an indicator of the kind of price buildup that is there in the system and that can be handled through monetary policy. If core inflation or manufacturing inflation is down, I would expect a little ease in monetary policy action." Inflation Internals: Primary articles up by 0.1% Food articles up by 0.2% Non-food articles up by 0.2% Fuel, power, light remain unchanged Manufacturing products down by 0.5% Beverages & Tobacco up by 2.7% Textiles up by 0.1% Imported edible oil down by 7% Cotton seed oil & Oil cakes down by 3% Coconut & Groundnut oil down by 1% Salt down by 9% Rubber & Plastic products up by 0.7% Chemical & Chemical products up by 0.1% Non-metallic mineral products up by0.4% Machinery & Machine tools up by 0.1% Transport, Equipment & Parts up by 0.1% Cereal down by 0.1%, Pulses down by 0.5% Fruits & Vegetables up by 0.6% Eggs, Meat & Fish up by 0.7% Spices up by 0.6% Fibres up by 0.2% Oil seeds down by 0.5% Dairy products down by 0.3% Bakery products down by 0.4% Plastic & Plastic products up by 0.7% Fertiliser & Pesticides up by 0.2% Cement up by 0.5% Non-ferrous up by 0.1% Electrical machinery up by 0.1% Wires & Cables up by 0.2% Motor vehicles & Scooters up by 0.1%
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Inflation came in at 12.14% unchanged for the week ended September 13. Earlier, a CNBC-TV18 poll saw inflation for the week ended September 13 at 12.23% as against the actual number of 12.14%. 
What will be the effect on bond market?
Abheek Baruah, Chief Economist, HDFC Bank said that globally the liquidity situation is tightening and RBI and other Asian central banks are very concerned about the liquidity and a possible major capital outflow because of the global turmoil. "RBI now has to balance the concerns on inflation, with concerns on liquidity driven by the global financial crisis. This kind of number just makes the trade off easier. They might just plump for keeping rates and reserve requirements on hold at the end of October because the dominant concern at this stage is the liquidity squeeze and its impact on the domestic financial system."
