Goldman Sachs revises India’s CPI forecast to 5.5%

The Dollar Business Bureau

Financial services firm, Goldman Sachs, has revised its CPI forecast slightly upwards for India to 5.5 percent for the current fiscal 2016-17 mentioning higher prices of food. However, the firm said that the upside risks are partial due to a delay in rolling out the seventh pay commission.

According to the American multinational banking major, narrowing gap of the output and dwindling favourable base effects due to weak prices of commodities may result in an increase in inflation.

“We mechanically adjust our FY17 headline CPI inflation forecasts upwards to 5.5 percent y-o-y, from 5.3 percent earlier, due to higher than expected food inflation readings year-to-date,” Goldman Sachs said in a research note.

“Core inflation is likely to average 4.8 percent year-on-year in current financial year from 4.6 percent a year earlier,” it added.

As per the firm, food inflation is expected to continue to be relatively contained after the muted MSP raises, better monsoon and benign global food prices. In the meantime, the sowing for pulses has surged 35 percent year-on-year as on August 19.

The report further pointed out that the hike in civil service wages, when implemented, is expected to add 35 bps to major inflation and is possibly have a more silent effect on the inflation after the delay of the rise in housing allowance.

In addition, the GST implementation, at the earliest, will take place in the fiscal of 2017-18, leading to 'no effect on the headline inflation in the current fiscal.

On Reserve Bank’s policy stance, the report said the RBI is likely to keep its focus to bring down the inflation, while the policy rates are expected to remain on hold for the remaining 2016.