Inflation to fall to 6% by March: Goldman Sachs

Global banking and research giant Goldman Sachs has said India's headline inflation will fall to 6% by March 2012 due to weakening of demand.

"Demand continues to weaken and core inflation, as measured by the non-food manufacturing inflation, is trending lower in sequential terms. We believe this fall in inflation is observed to stay... Going forward, we expect year-on-year headline inflation to slow to 6% by March 2012," Goldman Sachs Global Economics, Commodities and Strategy Research said.

In its latest issue of 'Asia Economics Data Flash', it said this is likely to be the case even after factoring in a revision of the July Wholesale Price Index (WPI) number.

Headline inflation fell to an eight-month low of 9.22% in July. However, experts have said the numbers are likely to be revised upwards.

The government has revised the inflation figure for April to 9.74% from the provisional 8.66%. Similarly, the May number was revised to 9.56% from the provisional 9.06%.

"The July data suggests that sequentially, inflation continues to come off sharply. We think that the year-on-year numbers are misleading and do not capture the decline in inflationary pressures since a big spike in first quarter of 2011," Goldman Sachs said.

Goldman's projection is in contrast to forecasts made by the Reserve Bank of India (RBI) and the Prime Minister's Economic Advisory Council (PMEAC).

In its Annual Report for 2010-11 released last week, the RBI had said inflation is likely to remain elevated till the third quarter of the current fiscal and then moderate to around 7% by March 2012.

The PMEAC, in its Economic Outlook for 2011-12, projected inflation to remain high at around 9% till October, before falling to 6.5% by the end of the fiscal.

"There is a slowdown in economic activity in India which is being exacerbated by rising interest rates and headwinds from the global economic environment," Goldman said.

The RBI has hiked key policy rates 11 times since March 2010 to curb inflation. India Inc had said the repeated rate hikes have made the costs of borrowing expensive and reduced fresh investments and industrial production.