Wall Street brokerage Bank of America Securities has pencilled in lower than the consensus retail inflation for the current fiscal year at 5 per cent, but higher than the previous forecast of 4.7 per cent.
Stating that the June print will be critical for the future trajectory -- after the extremely high 6.3 per cent print in May, the brokerage in a report on Friday revised upwards its forecast by 30 bps to an yearly average of 5 per cent for the year to March 2022.
"Though the June print will be critical for future trajectory, beyond near-term, we find some comfort from our analysis of four key factors that are likely to influence CPI inflation the most.
"Nevertheless, there are pockets of risks, especially around perishables inflation and higher global oil prices," its house economists warned.
The June CPI data will be released on July 12 and the agency expects the reading to hover around 5.5 per cent, sharply down from the unexpectedly high 6.3 per cent in May, while the market is expecting another 6 per cent plus print.
Rising WPI, which sniffed at a record 12.95 per cent in May and the CPI at 6.3 per cent for the month, above the RBI's tolerance level has fuelled talks of a potentially sustained uptrend in inflation and an earlier-than-expected withdrawal of the current accommodative monetary policy settings by the monetary authority, even as the country is just recovering from the second shock of the pandemic, the report said.
"We believe there is a strong possibility of a sequential decline in retail prices, as market-based price data collection is expected to improve, after falling notably in May due to localized lockdowns," it added.
Beyond the June print which is very critical for the future trajectory, a simple simulation exercise shows that the path for CPI inflation could be quite volatile and subject to a large range of possibilities, the BofA report observed.