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Monthly Wholesale Price Inflation for December 2013 came in at a surprisingly low 6.16% on the back of lower food prices.

WPI Index and Inflation

This is the first time the green line has dipped so much since 2008. In effect, month-on-month inflation is negative.

Component wise, the biggest culprits of recent times – food and fuel – have mellowed a bit. And manufacturing data is benign:

Inflation Components

Revisions continue to be on the upside, as October inflation, first announced at 7.00%, is now revised to 7.24%.

Inflation Revisions

Impact: Oh the number is low, but food inflation at 10% is still scary. CPI inflation is also around 10%, which is lower than earlier but tough nevertheless.

It would be suicidal to reduce rates right now. At best the RBI can be expected to keep rates steady. At this point, considering a low industrial growth number and inflation that is not too high, it might be the most rational expectation. There is a very small chance of a rate cut by 0.25%, and an even smaller chance of a rate hike by 0.25%. Both of these will not have too much of an impact, as the RBI will be expected to adopt a wait and watch strategy on further direction and any current measures aren’t going to be a change in stance.

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