Mumbai: India’s wholesale price index (WPI) is seen speeding to double-digits by March led largely by non-food components, and a hike in local fuel prices could add to the pressure, analysts said.
Headline inflation in January accelerated to its fastest pace in more than a year, vaulting above the central bank’s end-March inflation forecast, led by fuel and manufactured products.
“We expect core inflationary pressures to rise further because input costs have surged faster than output prices,” Sonal Verma, economist at Nomura said in a recent note.
“Therefore, we believe that core inflation will continue to accelerate and will be the key driver of inflation in 2010 as against supply-side food price-led inflation in 2009.”
Verma expects the inflation rate to move into double-digits by March and has forecast 150 basis-point hike in repo and reverse repo rates as well as a 75 basis point increase in the cash reserve ratio by March 2011.
Her concerns are echoed by Citigroup economists Rohini Malkani and Anushka Shah.
“The economy is now showing clear signs of a demand revival,” they wrote.
“Going forward, while primary product prices are likely to abate, an impending fuel price adjustment coupled with rising manufactured prices is likely to result in headline numbers crossing 9% in February and heading towards double-digits in March,” they added.
Citi said it does not expect the Reserve Bank of India to hike rates before the 20 April monetary policy and it maintains its view of a minimum 125 basis point rise in policy rates.
RBI deputy governor Subir Gokaran said earlier this month it was unlikely to take further steps on monetary policy before a meeting in April, saying he expected food prices to moderate in the coming months on good winter crop prospects.
“Assuming no sharp rise in global commodity prices (particularly oil), we expect headline WPI to peak at around 9.6% by March,” Kotak Mahindra Bank economists Indranil Pan and Shubhra Mittal wrote.
“Thereafter, we see headline inflation starting to moderate as the base effect kicks in and expect WPI to end 2010-11 at around 5.8% (average Headline WPI inflation for 2010-11 expected at 6.7%).”