Inflation rises to 10.55%

Headline inflation, as measured by the Wholesale Price Index (WPI), inched higher to 10.55 per cent in June, owing to the pass-through effect of the increase in prices of petroleum products on June 25.

This was the fifth month when the rate remained above 10 per cent.

The double-digit inflation in June could be partly attributed to low base in the corresponding month a year ago when inflation was at -1.01 per cent.

The WPI numbers were provisionally up 10.16 per cent in May, while they were revised to 11.23 per cent for April from the provisional 9.59 per cent.

However, Finance Minister Pranab Mukherjee exuded confidence that inflation would fall to 5-6 per cent by the end of this calendar year, as the harvest season picks up and kharif crop enters the market. “It (inflation) is hovering around double digits. After the kharif season is over, there will be a moderating impact which is already being felt,” he told reporters.
 

NORTH-BOUND All figures are inflation rates in per cent
	June  2009	May  2010	June 2010
All commodities	-1.01	10.16	10.55
Primary articles	6.52	16.6	16.28
Food articles	10.89	16.49	14.6
Manufactured products	0.64	6.41	6.66
Fuel products	-12.53	13.05	14.32

With analysts expecting upward revisions in the figures and higher inflation numbers in July, there are expectations that the Reserve Bank of India (RBI) will further raise its key policy rates by 25 basis points in the upcoming monetary policy review on July 27 to contain inflationary expectations.

In order to combat inflation, RBI has already raised its policy rates like repo and reverse repo thrice this year.

“July figures will be slightly higher (as the impact of the oil price rise will be completely captured). RBI may raise policy rates by another 25 basis points. After July, we could see some dip in inflation as the base effect starts waning,” said Govinda Rao, member of the Prime Minister’s Economic Advisory Council.

Some have even expressed concern over the upwardly revised figures and stated that RBI was behind the curve in tackling inflation. “Given the significant upward revision to inflation numbers of late, we believe it would be more prudent to focus on the revised data (albeit three months old) in order to understand the real picture.