WPI to moderate further in coming months; average 2.8% in 2018: Nomura

WPI inflation is expected to moderate further in the coming months and is likely to average 2.8 per cent in 2018, says a Nomura report.

According to the Japanese financial services major, a moderation in WPI inflation in the coming months is likely owing to falling vegetable prices and favourable base effects.

"Looking ahead, with food prices (vegetables) falling further in recent weeks and favourable base effects on fuel inflation until January 2018, we expect WPI inflation to moderate further in the coming months, before stabilising," Nomura said in a research note.

Nomura expects WPI inflation to average 2.8 per cent year-on-year in 2018 from 3.1 per cent in 2017.

According to the official data, wholesale inflation fell to 2.60 per cent in September as prices of food articles, led by vegetables, softened.

Inflation, based on the wholesale price index (WPI), had soared to a four-month high of 3.24 per cent in August 2017. It was 1.36 per cent in September 2016.

Nomura said the recent WPI data suggests that input costs (food and fuel) have moderated, while output prices (core WPI) have moved marginally higher.

"However, we believe the rise in core WPI inflation largely reflects higher commodity prices (especially steel), and not necessarily demand-side pressures," it said.

Earlier this month, the Reserve Bank kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 per cent for the current financial year.

It also raised its inflation forecast to a range of 4.2 to 4.6 per cent during the remainder of the current financial year as against four to 4.5 per cent previously.