Retail Inflation to Firm up Further in Coming Months: Experts

New Delhi: CPI inflation is expected to firm up in the coming months driven by cyclical recovery in the economy and further implementation of pay commission-related 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 percent.

According to Japanese financial services firm 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 Reserve Banks (RBI) midpoint target of 4 percent in November and beyond. Global financial services major 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 percent in the June 2018 quarter before moderating to 4.4 percent by end-2018," Morgan Stanley said in a research note. Echoing similar sentiments, UBS in a research note 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 USD 60/bbl in this fiscal, inflationary pressure will rise but will still be manageable".

However, oil price strengthening above USD 70-75/bbl could lead to terms of trade shock and increase the risk of policy rate tightening, it added.

According to a Dun and Bradstreet report, rise in crude oil and industrial metal prices globally coupled with base effect is likely to impart an upward bias to inflation. D&B expects CPI inflation to be in the range of 4.2-4.4 percent and WPI inflation between 3.6-3.7 percent in November this year.