Inflation may reverse course in December: D&B

It expects the headline WPI inflation to increase by 1.0-1.5% during December 2014

Falling inflation is likely to reverse course and the figures for the current month may show a rising trend, says a report by Dun & Bradstreet.

According to D&B though WPI inflation stood at near zero during November 2014. It is likely to reverse its trend in December this year largely due to the base effect.

"D&B expects the headline WPI inflation to increase by 1.0-1.5% during December 2014," the report said.

According to the global research firm, though a sharp fall in WPI inflation and negative growth in Industrial production (IIP) is exerting pressure on the RBI to cut rates, the quantum of rate cut will be more important than the timing.

"A 50 basis point cut in repo rate a few months later will send a stronger signal to the market than a 25 basis point cut during or before the policy meet due in February 2014," D&B India Senior Economist Arun Singh said.

As per official data, the WPI inflation hit a zero level in November and the IIP numbers contracted by 4.2% in October, the sharpest decline in at least two years, on poor show by the manufacturing sector.

These figures are putting pressure on the RBI to cut rate to boost growth. The Reserve Bank has maintained a status quo in interest rate since January. The RBI factors in retail inflation while formulating its monetary policy.

"Measures such as to allow banks to flexibly structure the existing project loans to infrastructure and core industries projects and governments' initiatives for ease of doing business would boost investment and industrial activity in the country rather than a mere cut in repo rate," Singh said, adding "the traction seen in policy initiatives should continue and followed by sound execution".