Supply-side issues may lead to a higher risk of inflation: Nomura
1 min read 18 Oct 2021, 06:57 PM ISTDespite upside risks, Nomura expects headline inflation in October to come in lower than the September reading owing to an exceptionally favourable base effect
PremiumSupply-side issues such as coal and chip shortage may limit production at a time when demand is seeing a robust rebound, risking higher inflation, according to Nomura.
“Even as demand is recovering, supply bottlenecks have emerged as a bigger constraint. Coal shortages are resulting in supply disruptions to non-power customers, while chip shortages have hurt passenger vehicle sales during the festive season. As supply struggles to tango with demand, we see higher inflation as a bigger risk," said Nomura.
The Nomura India Business Resumption Index rose to an all-time high of 108.8 for the week ending 17 October from 105 last week with a broad-based rise across most sub-components.
Mobility indices rose sharply ahead of the festive season. The Apple driving index jumped 14.1 percentage points (pp) over the week, while Google workplace and retail & recreation indices rose by 2.7 pp and 3.1 pp, respectively. The labour participation rate rose to 41.6% from 40.4%, while power demand fell 1.7% week-on-week after rising 0.3% last week. The pace of vaccination has fallen in October, but India will cross the milestone of administering one billion doses this week, Nomura said. About 20.5% of the population is fully vaccinated and 50.4% have received at least one dose, which is enabling reopening and has boosted mobility. With domestic flights allowed to operate at full capacity now, the transportation sector should get a further boost, Nomura added.
