Global banking giant Nomura said that India's headline inflation is likely to remain high this year too, registering an average of 8.6% in 2011-2012 as manufacturers are likely to pass on input costs to consumers.
In its Asia Economic Alert the banking and asset management behemoth also said that the Reserve Bank is likely to hike the short-term lending rate by 100 basis points in 2011 with the purpose of curbing inflationary pressure.
It said that "We expect Wholesale Price Index inflation to average 8.6% year on year in FY12 from 9.4% in FY11. Our analysis suggests that the cost pass through is still incomplete and both headline and core WPI inflation will accelerate further in the first half of FY12 before retreating in the second half."
Nomura said that "We are penciling in 100 basis points of additional repo interest rate hikes in 2011 taking the terminal rate to 7.75%" without making any projections about the RBI's short term borrowing rates.
RBI has already hiked the key policy rates eight times since March 2010. Experts have said the central bank is likely to go for another mild hike at its next quarterly review on May 3 as inflationary pressure still persists.
Nomura said margins are under pressure compared with average high levels suggesting that if input costs do not fall, a further rise in output prices is likely.
It said that "A global shortage has pushed up cocoa prices, which should propel domestic coffee prices higher. Supply disruptions in China have inflated India's raw cotton prices by 36% so far in 2011 but cotton fabric prices are up only 10%."
Nomura said that core inflation, which do not take into account price rise of food items, have also started accelerating. In March core inflation stood at over 7%.
It said "we expect core inflation to accelerate to around 8% by September."
Nomura's report said the increase in core segment numbers will lift headline inflation from 8.9% in the Q1 of this fiscal and take it further to 9.1% in Q2 and 9.6% in Q3 before moderating again.
(Sourced from ET)
