With global commodities deflation bottoming out, the WPI inflation is likely to see an uptick in the current fiscal and is estimated at 7.1 per cent by March 2017, says a Bank of America Merrill Lynch report.
According to the global financial services major, the divergence between Consumer Price Index and Wholesale Price Index based inflation is likely to end this year amid bottoming out of global commodities deflation and likely normal rains.
"With global commodities deflation bottoming out, we will see a pick-up in WPI inflation in FY17," BofA-ML said, adding that CPI inflation, which is 'food heavy' will likely see a reprieve with normal monsoon this year after two back-to-back droughts.
The global brokerage firm has a 2016-17 CPI inflation forecast of 5.7 per cent in March 2017. This assumes full pass-through of oil analysts' forecast of a spike in Brent - to USD 55/bbl by December - to domestic prices.
The WPI inflation forecast of 7.1 per cent in the current fiscal also assumes a back-ended rise in commodity prices.
CPI or retail inflation in March fell to a six-month low of 4.83 per cent on account of cheaper food articles such as vegetables and pulses.
WPI-based inflation remained in the negative zone for the 17th month in a row at (-)0.85 per cent in March even as prices of some food articles, mainly pulses, turned costlier.
On Reserve Bank's policy stance, the report said the Central Bank is expected to go for a 25 bps cut on August 9.
"We continue to expect the RBI to cut a final 25 bps on 9 August," it said adding the scope for further RBI rate cuts will be limited.
In the first bi-monthly monetary policy review for 2016-17 announced on April 5, Rajan reduced the key interest rate by 0.25 per cent and introduced a host of measures to smoothen liquidity supply.
