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India April WPI inflation seen below 9%

India April WPI inflation seen below 9%
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First Published: Wed, Apr 28 2010. 02 35 PM IST
Updated: Wed, Apr 28 2010. 02 35 PM IST
New Delhi: India’s headline inflation in April could be lower than 9% and would start easing further in coming months, a government adviser said on Wednesday.
Annual wholesale price inflation in March touched a 17-month high of 9.90%, prompting the central bank to raise rates in April, its second such move in as many months.
“It (inflation) has already peaked,” Saumitra Chaudhuri, member of the Planning Commission, told Reuters in an interview. “It will come lower in the month of April. I would not be surprised, if it is less than 9%.”
Government officials, keen to keep the economic growth on track, have said inflationary pressures were waning and have played down the need for aggressive monetary tightening. However, price indicators have mostly belied such an optimism.
Chaudhuri’s comments come two days after Reserve Bank of India Governor Duvvuri Subbarao said rising prices for food, fuel and wages have made inflation more of a generalised and demand-side problem.
Last week, the central bank raised its key interest rates and bank reserve requirements by 25 basis points each.
A Reuters poll conducted after last week’s policy review found a small majority of economists expected another increase in rates by end-June, before the RBI’s July quarterly review.
The RBI has forecast the headline inflation at end-March 2011 at 5.5 percent, which some economists have dubbed as too optimistic.
But Chaudhuri, who is also a member of the prime minister’s economic advisory council, said stable global commodity prices and a normal summer monsoon will help keep inflation in check.
“I don’t think, it (the RBI forecast) is optimistic. It is realistic. May be we can even hit lower than that.”
Much of the country’s inflationary pressures were initially on the supply-side as a result of the 2009 monsoon failure that pushed up food prices.
Although food price inflation is showing signs of easing, it continues to be in high double digits. Food prices rose 17.65% in the 12 months to 10 April, marginally higher than 17.22% in week-earlier data.
“If the monsoon is normal, (food) prices will get normalised, and even the rate of inflation will decline,” Chaudhuri said. “This will come to single-digit and then it will come down to lower single digit after monsoon.”
India’s summer monsoon is likely to be normal this year, with rainfall expected to be 98 percent of the long-term average, the government said last Friday.
Congress-led ruling coalition is under pressure to stem rising inflation, which is seen hurting the poor.
The government on Tuesday survived a trial of strength in parliament demanded by opposition parties against an unpopular hike in fuel and fertiliser prices which they said stoked inflation.
India, the world’s second-fastest growing major economy after China, is expected by the government to grow around 8.5% in the current fiscal year to March 2011 and 9 percent in the following year.
However, a fast recovery in the economy is also seen causing capacity constraints, which in turn is driving up inflation. Analysts expect the central bank to try to cool demand until companies boost their output.
“Sustained growth is not possible without price stability,” Chaudhuri said.
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First Published: Wed, Apr 28 2010. 02 35 PM IST
More Topics: India | Economy | Inflation | WPI | Commodities |