Higher July headline inflation rate expected in India

Following results of rising CPI inflation.

Amid the release of India's July WPI inflation results, headline inflation is expected to rise 5.5%

YoY (market: 5.1%) from 5.4% the month before.

According to a research note from DBS, CPI inflation released earlier in the week rose 8.0% YoY from the revised June’s 7.5% on higher vegetable price index.

The same factor is likely to keep the WPI reading elevated, while the fuel index benefits from stable rupee and commodity prices.

Here’s more from DBS:

At the same time, the PMI-manufacturing price sub-component signaled at pipeline risks as input prices rose sharply in July.

Improving business conditions might prompt manufacturers to pass on the higher costs to end-consumers.

As it stands, the manufacturing WPI index quickened marginally to 3.6% YoY in the Jun14 quarter, from 3.0% last year.

Core WPI (non-food manufacturing inflation) has also picked steam to 3.9% from 2.9% last year, with an anticipated recovery in aggregate demand likely to bring demand-pull forces back to the table.

Against this backdrop, the Reserve Bank of India (RBI) is expected to maintain a cautious stance and remain on prolonged pause on rates in FY15.

In comments yesterday, RBI Governor Raghuram Rajan stressed that while high rates were painful in the short-term, it was the ideal policy stance of the long-term to contain inflation.