While generally inline with consensus, the reading provides solid confirmation that India has been able to use monetary policy to slow the inflation rate. Now the real question is how low the rate will drop and whether this will provide enough room for the RBI to drop interest rates.
Simple math suggests the rate will see further drops as such a huge drop suggests month over month inflation is flat lining.
Of the components, manufacturing inflation remained at 7.4% while fuel inflation only saw a modest decrease to 14.9%. Just don't see how fuel inflation can remain so high if oil is virtually flat this year. Only currency could explain stubbornly high prices and that will reverse in due time.
Per CNBC.com report:
- The wholesale price index (WPI), the main inflation gauge, rose 7.47 percent from a year earlier, slowing from a 9.11 percent rise in November, roughly in line with the 7.50 percent increase forecast in a Reuters poll.
- Food inflation tumbled to 0.74 percent in December from 8.54 percent in November
- Fuel inflation was 14.91 percent compared with 15.48 percent
- Manufacturing inflation was at 7.41 percent compared with a reading of 7.7 percent in the previous month.
To Stone Fox Capital, this is just more evidence that the emerging market inflation scare of 2011 was overdone. The BRIC nations could see very robust equity returns in 2012.
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