Contrary to consensus estimates of 1 per cent inflation (WPI-inflation) for the week ended Sep. 26, 2009, the actual inflation turned out to be on the lower side at 0.70 per cent. Question arises why it appeared lower than previous week’s (i.e. for the week ended Sep. 19, 2009 at 0.83 per cent). A look at WPI data tells you that the base effect would have completely got wore off by October 2009, which was also the popular perception some times of policy makers and economists some times back. But for the steep rise in food inflation (food article annual point-to-point inflation 15.5 per cent for the week ended Sep. 26, 2009) during last couple of months, the base effect came to end for the week ended Sep. 05, 2009 with an annual inflation of 0.12 per cent. Thereafter inflation slowly crept up lending credence to 1 per cent consensus estimate for the weak ended Sep. 26, 2009. But here lies the caveat.
A careful look at the WPI data tells you that base effect is yet to wear off and might push inflation lower in the range 0.60 per cent plus or minus 10 bps. This is further supported by a drop in food price inflation as it shows that food price inflation on a sequential (week-over-week) basis, though marginally, is on a declining phase. But food inflation could shoot up in coming weeks taking account of the flood situation in AP and Karnataka which destroyed a majority of rice and cash crops. Lets wait and watch for the actual number to play out. The upside risk to the above estimate could be more than anticipated rise in food price inflation (food price inflation is estimated to come down to 15 per cent for the week ended Oct. 02, 2009), changing the number game thereof.
A careful look at the WPI data tells you that base effect is yet to wear off and might push inflation lower in the range 0.60 per cent plus or minus 10 bps. This is further supported by a drop in food price inflation as it shows that food price inflation on a sequential (week-over-week) basis, though marginally, is on a declining phase. But food inflation could shoot up in coming weeks taking account of the flood situation in AP and Karnataka which destroyed a majority of rice and cash crops. Lets wait and watch for the actual number to play out. The upside risk to the above estimate could be more than anticipated rise in food price inflation (food price inflation is estimated to come down to 15 per cent for the week ended Oct. 02, 2009), changing the number game thereof.
