Mumbai: The country may see inflation touch 6% cent by June-July, as global crude prices, food items and commodities continue to surge, economists believe.
Global crude, food and commodity prices have been fuelling inflation and with the likely continuation of this trend over the next few months, any hope of policy rate cuts by the Reserve Bank in the near-term has all but evaporated, they said.
“There is a tremendous upward pressure on inflation and I see it inching close to the 6% mark by end-June,” Bank of Baroda’s chief rconomist Rupa Rege Nitsure told PTI here.
A continuous rise in inflation figures over the last two months has seen it breach the Reserve Bank’s projected level of 5% last week. Inflation stood at 5.11% for the week ended 1 March, as against 5.02% the previous week.
High global oil prices at around $110 a barrel have contributed significantly to fuelling inflation, along with rising global food, edible oils and commodity prices.
“I expect inflation at around the 5.5% level next month. Rising commodity and food prices will definitely pressurise inflation but much will depend on how oil prices move,” Crisil’s director and principal rconomist D K Joshi said.
The economists see a limited role for monetary policy in reigning in inflation presently. “I expect the government to use administrative and fiscal tools to control inflation because the present rising inflationary trend is mainly due to supply-side problems,” Enam Securities chief economist Sachichidanand Shukla said.
Shukla expects the government to effect excise and customs duty cuts on some items as a part of its fiscal initiatives to rein in inflation. “Administrative efforts would work better on the food side,” he said.
On whether oil prices would be further hiked this year, the economists felt that this being a pre-election year, the government might not do so. “However, from an economic perspective, that (a hike) might be the best thing to do,” Crisil’s Joshi said.
The government might also consider another tranche of oil bonds, Shukla said.
“The oil price pass-through has not yet begun to reflect fully in our economy. Once it does, then inflation could rise further,” IDBI Capital MD & CEO Sushil Muhnot said.
The RBI cannot do much on factors such as rising oil prices. “The Rupee too has not appreciated of late and hence, fuel prices will significantly impact inflation. Earlier, rupee appreciation helped somewhat offset rising global prices,” Joshi said.