INSTANT VIEW - Annual inflation at 11.63 pct on June 21

Fri, Jul 4 12:59 PM

NEW DELHI (Reuters) - India's wholesale price index rose 11.63 percent in the 12 months to June 21, above the previous week's annual rise of 11.42 percent, government data showed on Friday.

The rate was above a median forecast of 11.44 percent in a Reuters poll of analysts.

Inflation for the week ended April 26 was revised upwards to 8.27 percent from 7.61 percent.

The annual inflation rate was 4.32 percent during the corresponding week of the previous year.

KEY POINTS:

SUB-INDEX (WEIGHTING) June 21 June 14 Pct change

PRIMARY ARTICLES (22.025) 244.3 243.0 +0.5

Food articles (15.402) 233.6 232.1 +0.6

Non-food articles (6.138) 238.9 238.0 +0.4

FUEL, POWER, LIGHT

AND LUBRICANTS (14.226) 374.4 374.7 -0.1

MANUFACTURED PRODUCTS (63.749) 203.9 202.8 +0.5

Food Products (11.538) 210.6 208.8 +0.9

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Note: Articles in CAPITALS are sub-indices. Articles in lower case are specific categories within the sub-indices.

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COMMENTARY:

A. PRASANNA, ECONOMIST AT ICICI SECURITIES, MUMBAI:

"Although the headline number is depressed a bit because of base effect, this number actually indicates a substantial rise in the index over the previous week.

"Looking at the near-term trend, headline inflation could cross 12 percent by the time of the policy review on July 29. Looking at the way global commodity prices have been behaving, underlying inflationary pressures are still firm. We do not rule out a further rate action at the review."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:

"Both the second round and third round effects of the fuel price hike as well as the accelerated growth in money supply are swelling the inflation. I see it peaking at about 13.5-14 percent in early October.

"The monetary policy measures will work with a lagged effect, even the cash reverse ratio is yet to take effect on July 5 and July 19, so inflation will take some time to cool off.

"We do not expect any immediate monetary tightening but only a 25 basis point CRR increase at the July policy."

HAN-SIA YEO, FOREX STRATEGIST, BANK OF AMERICA, SINGAPORE:

"After the initial surprise on June 7, the subsequent prints are far less worrying. So far, it seems that the bulk of the pass-through has occurred in the first week, though the extent was above expectation. I think if weekly inflation numbers continue to show such benign rise in the coming weeks, we could be looking at a rather unexciting quarterly meeting."

SONAL VARMA, ECONOMIST, LEHMAN BROTHERS, MUMBAI:

"The momentum in inflation continues to accelerate and that is a worrying sign. With rising input costs, there is a lot of pressure on producers to increase output prices. Given this risk of second round effects, we expect the RBI to hike repo rates by 25bp at the July policy and cash reserve ratio by 50bp in Q3 2008."

MARKET REACTION:

Bond yields had risen ahead of the data after local newspapers and television channels had reported inflation hit 11.63 percent.

The yield on the 10-year bond was at 8.99 percent, up 18 basis points from the previous close.

The partially convertible rupee was at 43.195/205 per dollar, slightly stronger than 43.21/22 beforehand.

LINKS:

- Ministry of Commerce and and Industry Web site at http://www.eaindustry.nic.in

BACKGROUND:

- The Indian government on Thursday persuaded steel makers to cut prices of some products by 10 percent to help tame inflation. The government also banned exports of corn until Oct. 15 to increase local supplies.

- Earlier this week, India's central bank governor, Y.V. Reddy, said in an interview to an online news service in Switzerland that there was little consensus for inflation-targeting in India as a way of controlling inflation expectations.

- The Reserve Bank of India last month raised its key lending rate by 75 basis points to 8.5 percent, its highest in six years, and hiked banks' reserve requirements, also by 50 basis points, in an aggressive move to combat inflation.

- Inflation had shot above 11 percent in early June to a 13-year high following a hike in fuel prices, rattling markets and prompting Finance Minister Palaniappan Chidambaram to warn of stronger anti-inflation measures ahead.

- Chidambaram said last month he expects headline inflation to stay in double digits for some weeks and begin to moderate in three months.

- The government has cut import duties on a range of commodities and enforced some export bans to boost supplies and lower prices.

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