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Nomura sees inflation in India to remain at around 9pct till Nov

Research firm Nomura has said that it expects inflation in India to remain elevated at around 9% till November 2011, before moderating to around 6.8% by end of the current financial year.

The agency said in the latest edition of its 'Asia Economic Alert' that "Headline Whole Price Index inflation is likely to stay around 9% till November 2011, beyond which we expect it to moderate to reach 6.8% in March 2012, primarily due to base effects."

The base effect in economic terminology refers to a statistical phenomenon in which a low rate of inflation, or any other indicator like sales, during a corresponding period prior to that under review would make a small change in the period under review appear large. Similarly, in case of a high base during a given year, a large change in absolute terms would appear small during the corresponding period under review. Headline inflation in the country has been above the 9% mark since December 2010.

Nomura said that the moderation in inflation numbers will start to show from December 2011, when it expects the rate of price rise to fall to 8 per cent.

Headline inflation stood at 9.72% in September 2011, the latest month for which data is available. The government and the Reserve Bank had earlier said that they expect inflation to remain at an elevated level till the first half of the year and then show signs of moderation.

Experts, however, have said that inflation is unlikely to fall much in the near future.

Nomura said that "Encouragingly, core inflation has steadily moderated over the past few months. Looking ahead, we expect this trend to continue as both domestic demand and external demand are likely to weaken further."

Core inflation, as measured by the rate of price rise of non food manufactured items, declined marginally to 7.69% in September 2011 from 7.79% in August. It had touched a high of 7.90% in June. Manufactured items constitute over 65% of the total WPI basket.

Regarding the RBI's likely course of action, Nomura said that "We maintain that there will be no further hikes in policy rates by the RBI. Since developments over the past few months indicate that core inflation has moderated, domestic demand has weakened considerably and the near term outlook for the global economy remains weak."

However, at the central bank's meeting at Jaipur last week, RBI Governor Mr D Subbarao had said the rate hikes have affected industrial activities, but asserted that inflation continues to remain above comfort levels. He also said that interest rates would come down only if inflation eased.

The RBI has already hiked key policy rates 12 times, by a total of 350 basis points, since March, 2010, to tame demand side pressure and curb inflation.