Inflation based on wholesale and retail price indices will rise on an average by 2.7% and 4.9% during the next fiscal, India Ratings and Research projected today.
“Notwithstanding the benign retail and wholesale price forecast for 2016-17, Ind-Ra believes the inflationary challenge is far from over as food prices have more than often triggered surprises,” the agency’s Chief Economist Devendra Pant said in a statement.
As regards RBI’s policy stance, Pant said the central bank is likely to be accommodative in the near term. “If conditions permit, Ind-Ra expects a 0.25-0.50% cut in the repo rate during 2016-17,” he said.
Ind-Ra expects average Wholesale Price Index (WPI) to rise by 2.7% and Consumer price index (CPI) to rise by an average of 4.9% in 2016-17, the statement said.
The food related headwinds in overall inflation have been a mixture of structural and cyclical factors, Ind-Ra said.
It added that the structural issues plaguing Indian agriculture lately are stagnation in productivity, rising cost of cultivation, changing food consumption pattern, and exploitation of supply shocks by intermediaries.
According to the International Monetary Fund (IMF), the consumer prices in emerging and developing economies are expected to rise to 5.6% and 5.9% in 2016 and 2017 respectively.
“This is also broadly in line with the Ind-Ra view on retail inflation in India which is likely to rise by an average of 4.9% in 2016-17,” Pant said.
Ind-Ra said the IMF’s projection of a decline in commodity prices – oil prices by 17.6% and non fuel prices by 9.5% in 2016 – is likely to keep the fuel and power component of wholesale prices in India down even next fiscal. Ind-Ra thus expects the average WPI to rise by 2.7% in 2016-17.
WPI as well as retail inflation has been on rising trend. In December WPI-based inflation stood at (-)0.73%, while retail inflation was at 5.61%.