RBI raises inflation estimate; Basu says high prices to stay

The Reserve Bank of India (RBI) on Tuesday raised its projection for wholesale price index-based inflation to 7 per cent at the end of this financial year, from its earlier estimate of 5.5 per cent.

The finance ministry, in its mid-term analysis in December, had pegged the figure at 6 per cent, but later revised it to 6.5 per cent.

This prompted Chief Economic Advisor Kaushik Basu to say the government might have to live with high inflation for a little longer than expected.

“The battle against inflation, which we were hoping would come to an end by March-April, will probably continue for some more months,” Basu said.

Asked about RBI’s 7 per cent inflation projections, Finance Minister Pranab Mukherjee said: “Let’s see. There are inflationary pressures in the system.”

He, however, added that a number of food items, blamed for the recent spurt of inflation, had seen stable prices. These include edible oil and cereals.

Inflation had started moderating by November, but rose in December due to expensive food items. It stood at 8.43 per cent in December from 7.48 per cent in the previous month.

If RBI projections are true, inflation at the end of this financial year would be somewhat moderate than 10.22 per cent witnessed in March 2010. However, despite the high base effect, inflation is not coming down drastically. This clearly shows that prices rose significantly this year.