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CPI inflation to rise in coming months driven by economic recovery: Experts

Morgan Stanley expects CPI inflation to rise to a peak of 5.3% in June 2018 quarter before moderating to 4.4% by end-2018

Press Trust of India  |  New Delhi 

A vendor arranges vegetable at his stall in a market in Mumbai. Photo Reuters
A vendor arranges vegetable at his stall in a market in Mumbai. Photo Reuters

is expected to firm up in the coming months driven by a cyclical recovery in the and further implementation of pay commission-related hikes by states, according to experts. Price pressures have been relatively subdued in the early part of the calendar year, as weak demand conditions and demonetisation program weighed on However, going forward, Consumer Price Index (CPI) based is expected to rise in a cyclical form, they said. Stronger food and fuel pushed up headline in October to a 7-month high of 3.58 per cent. According to Japanese financial services firm Nomura, while lower goods and services tax (GST) rates have moderated output prices, marginally higher input prices along with higher food is likely to push is slightly above the Reserve Bank’s (RBI) midpoint target of 4 per cent in November and beyond. Global financial services major also said that the impact of the implementation of house and pay commission-related hikes by states and across sectors will impart inflationary pressures. "Reflecting these factors and also taking into account the base effects of subdued food prices earlier this year, we expect headline to rise to a peak of 5.3 per cent in the June 2018 quarter before moderating to 4.4 per cent by end-2018," said in a research note. Echoing similar sentiments, UBS in a research note said is expected to rise going forward, but it should not be a "worry" and oil and fiscal slippage would be the key risk for the Since India is a net oil importer, global price movement tends to have an important bearing on macro stability risks, UBS said, adding "if the Brent price averages around $60/bbl in this fiscal, inflationary pressure will rise but will still be manageable". However, oil price strengthening above $70-75/bbl could lead to terms of trade shock and increase the risk of policy rate tightening, it added. According to a Dun and Bradstreet report, rise in and industrial metal prices globally coupled with base effect is likely to impart an upward bias to expects to be in the range of 4.2-4.4 per cent and WPI between 3.6-3.7 per cent in November this year.

First Published: Sun, December 03 2017. 14:59 IST