Mumbai: The wholesale price index (WPI) rose faster-than-expected 7.81 percent in September from a year earlier, mainly driven by higher fuel prices, government data showed on Monday.

Analysts on average had expected an annual WPI rise of 7.70 percent, a poll showed.  

The annual reading for July was revised up to 7.52 percent from 6.87 percent earlier. August's inflation was provisionally put at 7.55 percent.    

COMMENTARY

RAJEEV MALIK, SENIOR ECONOMIST, CLSA, SINGAPORE

"Today's data is slightly higher than expected, but the key driver is the fuel price adjustment, which has always meant to be a near-term negative, but very important from the medium-term fiscal correction point of view.

"The Reserve Bank of India will look beyond this particular factor. Also, the central bank's walk is not following its own hawkish talk. They have already eased their stance by releasing additional liquidity in the system, even though they have not cut interest rates recently. So we still think a rate cut will happen in the next policy, but beyond that the government will have to do more than offering lip service to reforms."

JYOTINDER KAUR, ECONOMIST, HDFC BANK, NEW DELHI

"Today's inflation number significantly reduces the chance of a repo rate cut in the next policy. But we see the Reserve Bank of India reciprocating to the government's recent reform measures by yet again cutting bank's cash reserve ratio.

"We see inflation between 8 to 8.5 percent for the full year. We see the manufacturing inflation going up because of the increase in diesel prices."

ANJALI VERMA, ECONOMIST, MF GLOBAL, MUMBAI

"The July revision is quite high. If we see similar revisions in August and September that would be worrisome.

"Inflation is expected to remain sticky and may inch above 8 percent for the November reading. I think that the RBI may think it better to hold on to rates and maybe do some liquidity injection measures like a cash reserve ratio cut."

SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI

"As expected, the numbers are on the higher side and to supplement it, the July revised index indicates the inflationary fight is not a quick fix in the short-term. We believe the fuel and power index is yet to realize the full impact of recent hike in diesel and LPG prices.

"However, the core stood almost flattish at 5.63 percent. Today's data would be a cause of concern for the RBI in framing a rate cut decision in the forthcoming policy meet but the government initiatives in the recent days and lower growth numbers might lead to a symbolic rate cut."

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

"Balance of risks for the September WPI was for strength after the record increase in diesel prices in the period. We expect second-order effects to feed-through the other components in the months ahead and keep the headline above 7.0 percent into end-FY13.

"Uncomfortable yes, but the firm number is unlikely to have surprised the RBI, who had been calling for administered fuel prices to be raised to tackle suppressed inflationary pressures.

"Pressure is mounting on the central bank for a quid-pro-quo move after the government initiated reforms to correct the fiscal imbalances and we expect consensus to be split as we approach the end-Oct review. Recent tough talk on inflation however narrows room for an imminent cut."

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

"Inflation number is very ugly and this reflects only the first round effect of the diesel price hike. We are going to see the cascading effect of the 12 percent diesel price increase going ahead as well. We are also seeing pressures building from the primary articles side. Overall the inflation situation is going to worsen until end-December. The full assessment of the inflation situation for the year as a whole can be done after we get clarity on the output of the rabi (winter-sown) crop.

"Given the fact that the pressures on growth are also acute the RBI will go for another round of CRR cut in the Oct. 30 policy and will adopt the wait and watch approach on the policy rate front. I expect the RBI to touch the policy rates only in the fourth quarter of the current fiscal year."

AMOL AGARWAL, ECONOMIST, STCI PRIMARY DEALERSHIP, MUMBAI

"The inflation numbers are not following the slowdown in the growth. I expect the inflation trajectory to remain around 7.5-8 percent and peak around 8.5 percent in December.

"The diesel price hike does not look completely factored in the September numbers. Electricity and diesel prices will weigh on the index in the coming months.

"I do not expect RBI to change rates on Oct. 30."

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

"Given the diesel and electricity price adjustment, we expect an uptick in inflation till December. By end March we expect inflation to be 7.5 percent and that's definitely higher than comfort level.

"We believe that inflation data is going to keep Reserve Bank of India away from a rate cut and the central bank would concentrate liquidity augmenting pressure. We expect open market operation (OMO) to be the first line of preference during October end and early November when liquidity is going to be tight. We are looking at 700 billion to 800 billion rupees ($13.2 billion to $15.1 billion) of infusion through OMOs."

SURESH KUMAR RAMANATHAN, HEAD OF REGIONAL RATES AND FX STRATEGY, CIMB, KUALA LUMPUR

"Fuel price is driving inflation higher, with the increase in diesel prices manifesting itself. We still see RBI staying pat on rates in the near term with no rate cut anytime soon."

ASHISH VAIDYA, HEAD OF TRADING, UBS, MUMBAI

"I think the negative factors on interest rates are behind us, the worst in inflation is over as this number had accounted for the fuel price increase. The fact remains that demand is slow, GDP growth is falling. But market perception is there is low probability of rate cut in October as this number is still above comfort level for policymakers."

MARKET REACTION

* The benchmark 10-year bond yield rose 1 basis point to 8.17 percent post the inflation numbers.

* The rupee was little changed at 53.12 per dollar from 53.14 beforehand.

* The benchmark 5-year swap rate and the 1-year swap rate  both rose 2 basis points each to 6.99 percent and 7.60 percent, respectively post the data.

* The main share index was little changed and continued to trade down 0.3 percent after the data.

BACKGROUND

- India's finance minister called on Saturday for the country's central bank to take "calibrated risks" to support the struggling economy as a reciprocal measure to government fiscal efforts.

- Industrial output rose modestly in August but not enough to end a long slump in Asia's third largest economy, while consumer price inflation slowed, improving the case for a cut in interest rates that both businessmen and politicians have been pleading for.

- Central bank Governor Duvvuri Subbarao said earlier this month inflation had to be brought down further, signalling the bank would stick to a hawkish stance, and the size of the fiscal deficit would be a key factor in determining monetary policy.

- Fighting inflation pressures has been the Reserve Bank of India's top priority even as economic growth slowed to its weakest pace in three years. The central bank, which has held rates at its past three monetary reviews, is scheduled to meet on policy on Oct. 30.  

- The government must tackle subsidies to restore fiscal discipline, RBI deputy governor Subir Gokarn said on Oct. 3

(Agencies)

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