A divergence seen between the CPI announced last week and the WPI announced this week. A downward shift in the Headline and Core CPI is not supported by a higher trend in the Headline and core WPI. Today’s WPI indicates that from the input side, there is not much comfort for the Indian business segment, with the metal and chemical prices moving on the higher side. With the INR on a weak trend again and with global oil prices going up, it is yet not clear what type of input side pressures the Indian business community would have to build into their business models. Given this scenario, there could be continued hesitancy to reduce prices, even as the demand side dynamics appear to have been contained in a large way. At this point, with the CPI and the WPI moving in divergent directions, the RBI would not factor either of the surprises into its reaction function. The monsoon (read as El-Nino), implications of this on cereals and oil-seed prices domestically as also in the Asian region could form a key determinant of inflation dynamics in the months ahead. Consequently, we hold on to our view that the RBI will, in all probability, stay on an extended pause, at-least till the end of the current CY
