SBI in its economic research report also expects repo hike of 25 basis points and MSF downward recalibration of 25 basis points
India’s inflation based on wholesale price index-WPI edged up significantly to 6.46% in September 2013. The increase was primarily because of increase in food inflation to 18.4%, but core WPI inflation also edged up marginally, on the back of increase in prices in export intensive sectors like textiles and leather. Consumer price index (CPI) inflation too edged up to 9.84%. This was expected, as the gap between CPI food and WPI food will get corrected in the coming days, and CPI may cross 10%, says a research report from State Bank of India (SBI).
The WPI inflation data is summarised in the following table:
According to the research note, core CPI may also rise further, as WPI trends of higher textiles and leather gets rubbed into CPI numbers. It also believed that WPI inflation will also inch up and may touch 7%. WPI may decline from January 2014, as past trends show when elections do happen, food prices show a declining trend, the report says.
With WPI inflation in September 2013 rising and the previous release of July 2013 revised upward to 5.85%, there is now a clear case for rising repo rate by Reserve Bank of India (RBI) as the distance of WPI from RBI’s comfort zone for inflation has only increased, SBI said. It expects that the WPI inflation will settle at 6.0% for FY14.
SBI said, “The question is in what form will the rate hike be effected - a pure hike in repo rate or a combination of change in liquidity adjustment facility (LAF) corridor and hike in repo rate. If the external sector conditions remain predictable, rupee volatility contained, then a policy prescription of latter combination is a possibility.” SBI in the research note said it expects a repo hike of 25 basis points and marginal standing facility (MSF) downward recalibration of 25 basis points.
Rising inflation, fewer employment avenues and dwindling earnings seem to have taken a toll on the spending capacity of middle- and low-income families in India. Many have slashed their festive budget by a staggering 40% this Diwali, says a survey conducted by industry body Assocham. Of the respondents, 76% said their monthly grocery bills had jumped to about Rs7,000 as against Rs4,000 in the past 12 months. Prices of vegetables and bakery products have also risen in the past few months. The survey was conducted in August and September 2013 in major Indian cities.
Leading jewellery retailer, Tribhovandas Bhimji Zaveri (TBZ), has launched a new gold plan for consumers. If a customer purchases 100gm of gold (24kt fine/standard) from TBZ and places it under their ‘Gold Plan’, he/she will get 105gm of gold after 12 months. Consumers can place a minimum of 10gm of gold coins and bars and thereafter, in multiples of 5gm up to an overall maximum of 500gm.
“People buy gold and keep it in the locker. Over the period, the value of gold may appreciate but it does not grow in grammage. Through our Gold Plan, people increase their gold holding,” said TBZ. A few years ago, a smaller jeweller in Mumbai, like Jagannath Gangaram Pednekar, was offering 7.5% compared to 5% of TBZ. So, one could get 107.5gm after 12 months of keeping 100gm gold. Under the scheme, one is really lending money to the jeweller which he may invest anywhere and, there is a risk in such investment—a default by the jeweller.