Inflation may cross 6%, food prices biggest challenge: PMEAC

The Prime Minister's economic advisory panel today said inflation may cross the six per cent mark by the end of this fiscal and managing food prices will be the biggest challenge for policy makers in the short run.

The PM's Economic Advisory Council (PMEAC), headed by former RBI Governor C Rangarajan, also cautioned policy makers against inflation contagion from global developments due to rise in oil prices and any further setback to the financial world.

"In India, given the strength of inflationary pressures in the first half of 2009-10, due in part to the drought and expectations of lower supply, it is easy to envisage a situation in March 2010, where inflation is higher than 6 per cent," said the Economic Outlook for 2009-10 released by the council.

"Inflationary pressures on the food front will be a major policy concern in 2009/10. In the short term, managing inflationary risks, particularly food price inflation, is the biggest challenge to policy makers," it added.

The council said the weak monsoon rains and available acreage data suggest lower kharif output rendering the management of food inflation a severe challenge this fiscal.

"While the current weather conditions favour a strong rabi (winter) crop, the possibility of adverse weather conditions in rabi cannot be completely ruled out," it added.