Wholesale inflation to average 0.6% in 2016: Nomura

WPI inflation is expected to average around 0.6% in 2016 compared with (-) 2.7% in 2015, owing to rising input costs, especially commodity prices, says a Nomura report.

According to the Japanese financial services major, WPI inflation is expected to see an uptick going forward largely owing to gradual growth recovery, commodity prices having bottomed out and base effects waning.

"We expect WPI inflation to average 0.6% y-o-y in 2016 compared with (-) 2.7% in 2015, owing to rising input costs (commodity prices), waning base effects and a narrowing output gap," Nomura said in a research note.

Wholesale price-based inflation jumped to 0.79% in May. The uptick was driven by higher food prices, global commodity prices and output prices in select manufactured categories.

A breakdown of WPI into input and output prices showed that input costs, which had been falling for the past one-and- a-half years, finally rose 0.3% y-o-y in May (as against (-) 0.5% in April).

However, output price inflation was relatively steady at 1.6%, reflecting weak pricing power of corporates despite rising costs.

"This suggests that profit margins could come under pressure as the bonanza from the sharp fall in input costs seems to be waning," it said.