Inflation now seen breaching 12 %

The data, released by the Central Statistical Organisation (CSO) here today, was accompanied by a steep revision of the provisional inflation figure of 7.57 per cent reported earlier for the week ended April 19. The final figure now stands at 8.23 per cent, once again underscoring the fact that inflation has been under reported throughout the recent months.

The current financial year 2008-09 began with a final inflation rate of 7.71 per cent, rising in quick succession to 7.95 per cent and following an uptrend ever since. The sharpest spike was recorded for the week ended June 7, when inflation rose to 11.05 per cent, on account of an increase in prices of petrol, diesel and cooking gas.

At this rate, inflation is expected to take at least three months to moderate, with economists saying that inflation will remain high for the remaining half of the calendar year, before falling to near 5-6 per cent level from next January and there after. 

"Inflation will remain in double digits until the end of the calendar year. In order to reinforce its policy stance, the RBI will hike rates in the course of the year," said A. Prasanna, analyst with ICICI Securities, adding that he expected inflation to peak somewhere between 12 to 13 per cent.

"I think it is set to cross 12 per cent soon. Inflation has been continuously going up and it looks like we are yet to see the peak," said Dharmakirti Joshi, principal economist at CRISIL, a ratings agency.  "Even today, inflation is latent because increases in fuel prices have not kept pace with high oil prices", he added.

Bank of Baroda chief economist Rupa Rege Nitsure saw inflation peaking at 13.5 to 14 per cent and added that the Reserve Bank of India's aggressive monetary tightening will continue. On Tuesday, the bank raised its key lending rate by 50 basis points to 8.5 per cent, its highest in six years, and hiked the cash reserve ratio by 50 basis points.

Other economists said that while more steps could be expected to dampen price pressures and inflationary expectations, further monetary tightening by the central bank may wait till the next review of policy scheduled for July 29. 

Separately, a key government adviser said double-digit inflation will continue awhile. "The way we calculate inflation, even if prices completely stabilise now, we will have double-digit inflation for some time," Subhashis Gangopadhyay, adviser to Finance Minister P. Chidambaram, told reporters, adding the government would have to wait and watch if more central bank action was needed.