WPI inflation to average 0.6% in 2016 : Nomura

WPI (Wholesale Price Index) inflation is expected to rise and average around 0.6 per cent this year, while the pace of increase will remain slow amid weak demand conditions, says a Nomura report.

According to the Japanese financial services major, the year-on-year WPI inflation is expected to rise on waning base effects and average 0.6 per cent in 2016 from (-)2.7 per cent in 2015.

WPI-based inflation accelerated for the third straight month in June, hitting 1.62 per cent on costlier food and manufactured items.

Food inflation has doubled over the span of four months, contributing significantly to the rise in WPI. Although food prices typically rise in summer months, the pick-up this June was much higher than normal, Nomura said in a research note. Going forward, Nomura expects the uptick in year-on-year WPI inflation to continue. “We expect year-on-year WPI inflation to continue rising because of waning base effects, albeit at a muted pace given ample manufacturing spare capacity and the recent stabilisation of global commodity prices,” it said.

For the full year, the report expects WPI inflation to average 0.6 per cent y-o-y in 2016, up from (-)2.7 per cent in 2015, it added. The hardening of the WPI index follows an uptick in retail inflation, announced on Tuesday, which hit a 22-month high of 5.77 per cent in June, dampening chances of a rate cut by RBI at its next policy meet scheduled for August 9.

In the June policy review meet, RBI Governor Raghuram Rajan kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if, good monsoon helps ease inflation.

The industry is still hopeful of further rate reduction from the central bank to boost investment.