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‘May inflation seen below 9%’

‘May inflation seen below 9%’
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First Published: Thu, Jun 10 2010. 04 21 PM IST
Updated: Thu, Jun 10 2010. 04 21 PM IST
Mumbai: India’s wholesale price inflation is likely to drop below 9% in May then rise on higher fuel prices before declining from August or September, a top policy adviser said on Thursday. “It will be lower at least for the month of May. My guess is it will be lower than 9%,” Saumitra Chaudhuri, a member of Planning Commission and Prime Minister Manmohan Singh’s economic advisory council, told Reuters Insider television in an interview.
Chaudhuri said inflation would pick up in June when petrol prices are likely to be revised, and headline inflation will remain high for a few months.
A government panel this week delayed a decision on changes to its fuel subsidy system, but government is expected to gradually withdraw subsidies, starting by raising petrol prices.
Chaudhuri said food price rises would cool if the summer monsoon is normal, as expected.
“For food prices, the worst was past in February. There will be relief on food prices,” he said.
Some analysts expect inflation to remain above 9% in May.
“Food inflation is still high, manufacturing inflation is a concern, the previous rate hike will play out and then there is a fuel price hike in the offing,” said N. Bhanumurthy, economist with Delhi-based think tank National Institute of Public Finance and Policy.
The Reserve Bank of India has raised its key policy rates by 50 basis points and the cash reserve ratio for banks by 100 basis points so far in 2010 to contain inflation expectations.
However, following the recent crisis in the euro zone, analysts expect the RBI to take slow and cautious steps for further tightening. The RBI is widely expected to raise rates by another 25 basis points at its next quarterly review on 27 July.
Policy Framework
Chaudhuri said that while inflation continues to be a problem, numbers may come down from alarming levels.
“Policy has to be geared, keeping inflation in mind,” he said.
India’s food and fuel prices quickened at the end of May, putting upside pressure on the wholesale price index.
The food price index rose 16.74% in the year to 29 May, higher than the previous week’s annual reading of 16.55%, following a rise in fruit and potato prices, government data released on Thursday showed.
“If commodity prices other than oil do not rise very much, manufactured goods price inflation can be managed, provided of course, we have our policy framework that is appropriate to manage it,” Chaudhuri said.
The annual headline inflation number eased in April. Wholesale prices, the most closely watched inflation gauge in India, rose 9.59% in April from a year earlier. That was weaker than 9.9% for March and 10% in February, which was the highest inflation since October 2008.
The central bank’s inflation projection for the end of the fiscal year 2010-11 that ends on 31 March is 5.5%.
On Tuesday, central bank deputy governor Subir Gokarn said food prices are a key driver for inflation in India and price pressure will ease if monsoons are normal
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First Published: Thu, Jun 10 2010. 04 21 PM IST