Rise in passenger fares will add around 10bp to CPI inflation: Nomura

Nomura says WPI inflation is likely to see a marginally larger impact

The government has raised railway freight fares by 6.5% and passenger fares by 14.2%, effective from 20 June 2014. The Railway Budget 2013-14 had announced to link the railway fares to fuel costs (diesel and electricity). The hike was due in April 2014, but it was put on hold owing to the elections.

As per the Nomura Financial Advisory services, the fare hikes will add slightly to inflation in the near term. Nomura expects the rise in passenger fares will add around 10 bps to CPI inflation, while anticipates that there will be a limited indirect impact on the CPI from the freight hike.

As per the Nomura, the WPI inflation is likely to see a marginally larger impact (the railway accounts for around 35% of freight traffic in India) as the cost of transporting goods such as coal, cement, oil, steel and food grains will rise.

However, the Nomura expects hikes to improve the profitability of the railways and hence they are a move in the right direction.

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