Mumbai: Annual food inflation fell marginally to 16.22% for the week ended 13 March from 16.3% for the week before, even as prices of lentils, fruits and vegetables rose over the past week. Jahangir Aziz, chief economist in India for JPMorganChase and Co., spoke about how he sees inflation panning out in coming months. Edited excerpts:

Raising concern: Jahangir Aziz, chief economist, JPMorganChase. Abhijit Bhatlekar / Mint

How ugly does inflation get from here?

Let us wait for couple of more weeks and see what kind of impact we get from the increased harvest. But my sense is that we will probably have to bite the bullet and start saying that look this is not a temporary supply-side phenomenon. This is a demand-side phenomenon.

If you look at food prices they have been on the rise from around early 2008 almost relentlessly. I really do not think that this is just a bad monsoon spike. It happened. It peaked in December and has fallen off. We’ll get a bit of that going through. But this is really saying that income has risen and we are structurally short on agricultural production.

What is your prediction for inflation levels in fiscal 2011?

We are around about 8-8.5% for FY11 average. We expect inflation to peak in June probably 11.5-12% and then slow down to about 6.5-7% by March (2011) end. We are looking at a new normal... probably 6.5-7%. I think that is reflection of the fact that across the board we are seeing supply shortages, just not in agriculture but very soon we will probably see that in industrial production, if Index of Industrial Production numbers keep rising at about 15-16%.

How do you see the Reserve Bank of India reacting?

My guess is that you will probably see (in) April another (borrowing rate hike of) 25 basis points (0.25%)—maybe a little higher rate hike... They should also look at reserve requirement and start taking out lot of liquidity. My guess is that by July policy meeting you will probably see another 50 basis points (0.5%).