WPI inflation may rise by 1.5 per cent in December, says D&B

Falling inflation is likely to reverse course and the figures for December may show a rising trend, says a report by Dun & Bradstreet.

According to D&B though wholesale (or WPI-based) inflation stood at near zero during November 2014. It is likely to reverse its trend in December 2014 largely due to the base effect.

The US-based global research firm expects the headline WPI inflation to increase by 1.0-1.5 per cent during December 2014, the report said.

According to D&B, though a sharp fall in WPI inflation and negative growth in industrial production (IIP) is exerting pressure on the Reserve Bank of India (RBI) to cut interest rates, the quantum of rate cut will be more important than the timing.

A 50 basis point cut in repo rate by RBI a few months later will send a stronger signal to the market than a 25 basis point cut during or before the monetary policy review meet due in February 2014, D&B India Senior Economist Arun Singh said.

Government data showed, the WPI inflation hit a zero-level in November and the October IIP contracted by 4.2 per cent, the sharpest decline in at least two years, on poor show by the manufacturing sector.

These figures are putting pressure on the RBI to cut key policy rates to boost growth.

The central bank has maintained a status quo in interest rate since January. It factors in retail inflation while formulating the country's monetary policy.

Measures such as to allow banks to flexibly structure the existing project loans to infrastructure and core industries projects and governments' initiatives for ease of doing business would boost investment and industrial activity in the country rather than a mere cut in repo rate, Singh said, adding the traction seen in policy initiatives should continue and followed by sound execution.