Inflation might edge higher as uneven distribution of monsoon could spike food prices; May CPI likely around 4.6-4.7%: Report

Even as monsoon rains are predicted to be normal this year, its uneven distribution could spike food prices, and inflation is likely to edge further, said a report.

According to the Dun & Bradstreet (D&B) report, rising fuel prices in India, which touched an all-time high recently, are likely to feed into other segments and keep the rate of inflation higher.

Representational image. Reuters

Representational image. Reuters

The southwest monsoon waters more than 50 percent of India's farmland. "The assumption of a normal monsoon has been one of the primary factors considered for improvement in demand in the current year.

"However, a spatial distribution of rainfall needs to be monitored carefully before setting in firm expectations as uneven distribution of rainfall could flare up food inflation," said Arun Singh, Lead Economist D&B India.

Moreover, factors like geopolitical risks, escalating tensions in global trade, volatility in international crude oil prices and sharp depreciation in rupee underline the upside risk to inflation.

D&B expects CPI inflation to be in the range of 4.6-4.7 percent and WPI inflation to be around 3.6-3.8 percent this month. It said that private consumption will revive strongly on the back of the dissipating impact of demonetisation and GST.

"Domestically, we look forward to the government to fulfil its commitment to revive investments, execute infrastructure projects and continue the policy momentum," Singh said.

The report also said that the consistent growth clocked by the capital and infrastructure goods sector is likely to support the IIP growth rates going forward. D&B expects the Index of Industrial Production (IIP) to have grown by 6.5-7.5 percent in April this year.

Furthermore, D&B said the bond market is expected to remain bearish given weak investor appetite, an increase in global crude oil prices and a rise in US treasury yields. The expectation that the Narendra Modi-led regime "may not be able to stick to its fiscal deficit target owing to rise in global crude oil prices and spending ahead of the general election will also exert downward pressure on bond prices," the D&B report added.

With inputs from PTI

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Updated Date: May 18, 2018 18:08:30 IST

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