Inflation based on wholesale prices, which touched a 4-year high in June, seems to have peaked this fiscal, and is expected to glide down to around 4.1 per cent by March 2019.
WPI inflation rose sharply to 5.77 per cent in June against 4.43 per cent in May, partly led by an unfavourable base effect. The steep hike in WPI inflation was on the back of “fuel and power” inflation.
Headline WPI inflation is expected to ease to 4.1 per cent in March 2019 and average at 4.5 per cent this fiscal against 2.9 per cent in 2017-18, according to a Kotak Economic Research report.
Meanwhile, retail inflation, which the RBI takes into account while formulating its monetary policy, had touched a 5-month high of 5 per cent in June. It is based on Consumer Price Index. \From a policy perspective, the Reserve Bank of India (RBI) is expected to stay cautious and go for further tightening, the report said.
“As a base case, we expect the RBI to remain cautious and possibly deliver another 25 bps rate hike in August, given the risks of further broad-based increase in core inflation, impact of minimum support price (MSP) hikes, and lower crop production given the progress of monsoon and sowing pattern,” the report said.
“We maintain a call for another 25 bps of rate hike in the August policy though it will depend on how/when the RBI factors in risks from higher agriculture prices,” the report added.
In its second monetary policy review for the fiscal, the Reserve Bank had last month hiked the interest rate by 0.25 per cent -- the first hike in more than four years -- due to growing concerns about inflation stoked by rising global crude oil prices as well as domestic price increases.
The next meeting of the RBI’s interest rate fixing panel is from July 30 to August 1.