Inflation down to 8.66% in April

Wholesale price based inflation fell to 8.66 per cent in April from revised 9.04 per cent in the previous month, but economists cautioned that risks to inflation are rising from the demand side and fuel prices, which may even catapult it to double digits as the current financial year advances.

As such, economists do not expect the Reserve Bank (RBI) to give up its tight monetary stance and hoped it to effect another 25 basis point rise in policy rates in the June policy review. RBI has already raised policy rates ninth times since early 2010, with annual policy for 2011-12 going for the steep increase of 50 basis points in policy rates.

Surprisingly, inflation in March was not 8.98 per cent as was reported last month, but way above RBI’s projections of around eight per cent and the finance ministry’s expectations of 7-7.5 per cent. The official statement attributed the correction to a programming error which had excluded index for basic metals, alloys and metal products.

In fact, inflation for February was also revised sharply to 9.54 per cent from 8.31 per cent, prompting some economists to say that officials should come out with an explanation for such a steep changes in the numbers. As such, many of them believe that inflation in April would also be quite higher than 8.66 per cent and may even cross 9 per cent.

The Oil Marketing Companies had on Saturday increased petrol prices by Rs 5 a litre, and if prices of diesel and LPG were also raised by 10 per cent, economists believe this alone would take inflation to around 9.4 per cent in May.