HDFC Bank report warns of inflationary pressures

Inflationary pressures bottomed out in February, but have been picking up since then on a sequential basis, a HDFC Bank report said here today.     

Though inflation is currently in negative territory, "firm food and fuel prices have meant that inflationary pressures are unlikely to abate in a hurry", the report said.     

It highlighted the recent hike in key domestic fuel prices as a case in point.      

The government has hiked petrol prices by 10 per cent and high-speed diesel by 6.5 per cent.     

The first round impact of the hike could push up inflation by 0.35-0.40 per cent, while the second round impact through higher food prices on account of an increase in transportation costs could be higher, the HDFC report said.     

For the time being, however, with wholesale price inflation (WPI) pointing to subdued price pressures, there is a relief of sorts for policy makers looking to keep both fiscal and monetary policy accommodative enough to sustain initial signs of recovery through H2FY10, it said.     

On inflation in the months ahead, the report said that the recent fuel price hike is unlikely to outweigh the impact of the high base effect on Y-o-Y inflation and deflation defined on an annual basis is likely to continue till September 2009.