Core inflation will start rising next quarter: Nomura

Brokerage house Nomura expects core inflation to start rising next quarter onwards as it feels an uptick in demand will coincide with a shortage in production capacity.

"India’s business cycle has bottomed and inventory restocking, an export revival and investment debottlenecking should lead to a cyclical recovery in industrial production. Our concern is that this will happen at a time when realisable capacity is even smaller due to persistent shortages in power and basic raw materials," Nomura analysts Sonal Varma and Aman Mohunta wrote in a note to clients today.

"In our view, this demand-supply mismatch will lead to manufacturers exerting pricing power. Hence, we believe the expected moderation in core (non-food manufactured) WPI inflation in Q1 2013 will be unsustainable, and that it will begin to rise from Q2 2013 (April-June)," the note said.