WPI inflation to average at 3.7% in FY16: D&B

Inflation is likely to average 3.7 per cent in 2015-16, higher than the moderate growth of 2 per cent logged in the last financial year, says a Dun & Bradstreet report.

According to the research firm, the decline in crude oil prices and lower demand side pressures are expected to aid inflation to ease down along the "glide path".

"D&B expects WPI (Wholesale Price Index) inflation to edge up to 3.7 per cent in financial year 2016 from 2.0 per cent in fiscal year 2015," Dun & Bradstreet (D&B) said in a research note.

However, the factors that are likely to pose upside risk to WPI inflation include administered price corrections, weak agricultural production and geo-political issues.

"If actual monsoon turns out to be below normal, not only agricultural growth would be impacted, the resultant increase in food prices would lead to reversal in the downward inflation trajectory," the report added.

WPI inflation declined for the third consecutive year; during FY15 it witnessed a growth of 2 per cent against a growth of 7.4 per cent and 6 per cent respectively in 2012-13 and 2013-14.

Inflation rate and inflationary pressures have abated beyond the target set by the Reserve Bank which led to the initiation of the monetary policy easing cycle from the last quarter of financial year 2015.

WPI-based inflation has been in the negative zone since November 2014 mainly on account of cheaper food and fuel products. It was at (-)2.06 per cent in February, (-)0.39 per cent in January, (-)0.50 per cent in December and (-)0.17 per cent in November. In March last year, it was 6 per cent.

In the monetary policy review in April, RBI kept the key policy rate unchanged on fears of unseasonal rain impacting food prices.

It has reduced repo rate by 0.5 per cent since January. The next review is due in the first week of next month.