Average inflation to rise next fiscal: Ind-Ra

Wednesday, Jan 27, 2016,15:12 IST By Metrovaartha A A A

New Delhi | Inflation based on wholesale and retail price indices will rise on average by 2.7 per cent and 4.9 per cent 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 per cent cut in the repo rate during 2016-17, he said.

Ind-Ra expects average Wholesale Price Index (WPI) to rise by 2.7 per cent and Consumer price index (CPI) to rise by an average of 4.9 per cent 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 per cent and 5.9 per cent 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 per cent in 2016-17, Pant said.

Ind-Ra said the IMF’s projection of a decline in commodity prices – oil prices by 17.6 per cent and non fuel prices by 9.5 per cent 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 per cent in 2016-17.

WPI as well as retail inflation has been on rising trend. In December WPI-based inflation stood at (-)0.73 per cent, while retail inflation was at 5.61 per cent.