The deflationary trend in WPI inflation seems to be bottoming out, and it is likely to turn positive from the first quarter of next year, says a report.
According to Japanese brokerage major Nomura, much of the WPI deflation continues to reflect lower global commodity prices, rather than weaker domestic pricing power.
“Underlying trends suggest that WPI deflation is bottoming out. As base effects wane, WPI deflation will cease from the first quarter of 2016 onwards, but price pressures are expected to stay subdued,” Nomura said in a research note.
According to official figures, deflationary trend continued for the 11th straight month with Wholesale Price Index based inflation remaining in the negative territory at (-)4.54 per cent in September.
“In our view, much of the WPI deflation continues to reflect lower global commodity prices, rather than weaker domestic pricing power. In fact, the gap between the input and output price indices a proxy for margins continues to improve,” the report added.
Even though year-on-year WPI readings remain negative, food and manufactured product prices (metals, cement) rose sequentially in September.
“We expect WPI inflation to remain negative until end- 2015, but as base effects wane, it should turn positive from Q1 2016 onwards. Overall, we expect WPI deflation to cease, but price pressures are expected to stay subdued,” it added.
The Wholesale Price Index-based inflation had come in at (-)4.95 per cent in August. It has been in the negative zone since November. In September last year, inflation was 2.38 per cent.
Meanwhile, the CPI, or retail inflation, for September rose to 4.41 per cent, from 3.74 per cent in July.
Last month, RBI had reduced interest rates by more than expected 0.50 per cent and said it expects CPI inflation to reach 5.8 per cent in January 2016.