Inflation momentum is likely to increase in Q2 2015 largely due to unseasonal rains.
Inflation momentum is likely to increase in the coming months largely due to unseasonal rains which could push CPI inflation to nearly 6 per cent in next three months, says a Nomura report.
According to the global financial services firm, although transitory, inflation momentum is expected to rise in the next three months.
“We estimate that unseasonal rains could push CPI inflation close to 6 per cent in second quarter of 2015 (April-June period), versus our current estimate of 5.2 per cent, indicating a transitory shock of 80 bps on CPI inflation,” Nomura India Chief Economist Sonal Varma said.
While on-the-ground prices in March were contained and are not yet a significant cause for inflation concern, the past four episodes of unseasonal rain suggest that there are upside risks to food inflation, and therefore CPI inflation, in the next three months, Varma added.
According to the Ministry of Agriculture’s initial assessment, the recent spate of rains damaged around 10.7 mn hectares of land, which comprises about 18 per cent of the total winter (rabi) crop area sown.
The Japanese brokerage firm said this rise in inflation momentum is “transitory”, and accordingly should not be a source of too much concern for the RBI, “although some short-term caution is warranted in order to keep inflation expectations anchored.”
The retail inflation rose to 5.37 per cent in February on higher prices of food items, including vegetables and beverages.
Meanwhile, inflation measured on wholesale price index (WPI) was at (-) 0.39 per cent in January, (-) 0.50 per cent in December and (-) 0.17 per cent in November. With inflation dropping to record lows, industry is demanding further easing of interest rates to boost growth.
Last month, the Reserve Bank had surprised markets by reducing the benchmark interest rate by 0.25 per cent to 7.5 per cent.
The RBI is scheduled to announce its bi-monthly policy statement on Tuesday.