Inflation surges; hopes of repo rate cut dashed

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Inflation surges; hopes of repo rate cut dashed
April WPI inflation data came in higher than expected at 7.23%, vs 6.89% reported in the month of March. The surge in inflation has dashed hopes of any repo rate cuts, which markets had expected following the weak IIP data that came in last week.

The annual rate of inflation, based on monthly WPI, stood at 7.23% (provisional) for the month of April, 2012 (over April, 2011) as compared to 6.89% (provisional) for the previous month and 9.74% during the corresponding month of the previous year. Build up inflation in the financial year so far was 2.07% compared to a build up of 1.74% in the corresponding period of the previous year.

The primary articles inflation came in at 9.71%, vs 9.62% in the previous month, while the inflation came in at 10.49%, as against 9.94% in the previous month.

The inflation readings did not go down well with the stock markets, which moved into the negative terrain, as soon as the high figure was announced. The Nifty was trading lower by 26 points at 11.45 am IST. The belief amongst analysts is that the high inflation will dissuade the RBI from cutting repo rates, which means that the economy would continue to see elevated levels of interest rates, which will affect growth prospects going forward.

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