Experts warn of rise in inflation

New Delhi, Dec. 3: CPI inflation is expected to firm up in the coming months driven by cyclical recovery in the economy and further implementation of pay commissionrelated hikes by states, according to experts.

Price pressures has been relatively subdued in the early part of the calendar year, as weak demand conditions and demonetisation program weighed on inflation.

However, going forward, Consumer Price Index (CPI) based inflation is expected to rise in a cyclical form, they said.

Stronger food and fuel inflation pushed up headline CPI inflation in October to a 7-month high of 3.58 per cent.

According to Nomura, while lower GST rates have moderated output prices, marginally higher input prices along with higher food inflation is likely to push CPI inflation is slightly above the RBI’s midpoint target of 4 per cent in November and beyond. Morgan Stanley also said that the impact of the implementation of house rent allowance and pay commission-related hikes by states and across sectors will impart inflationary pressures.

“Reflecting these factors and also taking into account the base effects of subdued food prices earlier this year, we expect headline CPI inflation to rise to a peak of 5.3 per cent in the June 2018 quarter before moderating to 4.4 per cent by end-2018,” Morgan Stanley said.

Echoing similar views, UBS said inflation is expected to rise going forward, but it should not be a “worry” and oil and fiscal slippage would be the key risk for the economy.

Since India is a net oil importer, global crude oil price movement tends to have an important bearing on macro stability risks, UBS said, adding “if the Brent price averages around $60/bbl in this fiscal, inflationary pressure will rise but will still be manageable”. —