Inflation has peaked in October and the trajectory is likely to come off hereon, notwithstanding any ugly shocks to vegetable prices in December, according to a new report by Nomura.

“Our analysis of WPI inflation suggests that manufacturing input cost inflation has dipped back to contractionary territory in August-September, while output price inflation remains depressed. This suggests that even though core inflation has probably bottomed out, we do not see the incidence of fresh shocks. We expect headline inflation to average 5.6 per cent in Q4 2024, but moderate to 4.6 per cent in H1 2025, with FY25 (year ending March 2025) averaging 4.9 per cent and FY26 at 4.0 per cent,” Nomura said.

Daily data on the first 10 days of November suggest that there is finally some retraction in vegetable prices after a two-month surge, with our index of vegetable prices tracking - 3.0 per cent m-o-m from 8.3 per cent in October. Edible oil prices continue to rise, albeit slower than in October (edible oil index is tracking 2.8 per cent vs 9.6 per cent in October).

“We also observe a rise in the prices of cereals and eggs, but lower pressure for pulses, milk, sugar and spices. In the non-food basket, price pressures in the fuel and core baskets seem largely capped, except for the impact of higher gold prices on personal care inflation. Overall, headline inflation is currently tracking ~5.6 per cent in November from 6.2 per cent in October and core inflation is likely to inch lower to 3.6 per cent from 3.8 per cent in October,” Nomura added.

On economic growth, Nomura said it is seeing rising downside risks to its GDP growth projections of 6.7 per cent y-o-y in FY25 and 6.8 per cent in FY26.  “Early data on demand during the festive season (September, December) were mixed , with offline retail sales trailing online sales, and much of it primarily driven by tier-2 and tier-3 cities. Festive auto sales have also been mixed, with two-wheelers performing better, reflecting steady rural demand, but passenger vehicle and commercial vehicle sales have been muted. Consumer goods companies are dealing with tepid sales growth and muted earnings. Urban consumption demand is softening, and there is evidence that companies are scaling down their salary outlays,” it said.

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