India's wholesale price inflation is likely to remain elevated over the coming months amid relatively tight capacity utilization that is set to prop up core price pressures, Shilan Shah, an economist at Capital Economics, said.
Wholesale price inflation eased to 5.7 percent in March from 6.6 percent in February, led by a slowdown in fuel inflation, official data released on Monday showed. Core inflation dipped to 1.2 percent, Shah reckoned, while food price growth accelerated to 3.1 percent.
Despite the latest easing, the wholesale price inflation remained close to its highest rate in three years, indicating that prices pressures are still elevated.
"There is no sign that the drop in demand after demonetization has opened up much spare capacity," Shah said.
Early April, the Reserve Bank of India unexpectedly raised the reverse repo rate by 25 basis points to 6.0 percent. An excessive liquidity in the banking sector could seep in to inflation, Shah noted.
"Indeed, combined with our view that CPI inflation will rise towards the upper bound of the RBI's 4±2 percent target range this year and given the recent hike to the reverse repo rate, we think that the central bank will begin hiking the repo rate before the end of 2017," the economist added.
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