Inflation inches up, analysts expect rate hike (Lead)

July 14th, 2011 - 6:30 pm ICT by IANS  

Pranab Mukherjee New Delhi, July 14 (IANS) India’s annual inflation continued to be on an uptrend, though the pace of increase slowed down, as latest data released Thursday showed inflation had nudged up to 9.44 percent in June, firming up chances of another rate hike by the Reserve Bank of India (RBI).

The provisional figures for May showed overall inflation at 9.06 percent.

The inflation figure for April was also revised upwards from the provisional 8.66 percent to 9.74 percent, according to data released by the commerce and industry ministry.

Since January this year, inflation has consistently remained above the 9 percent mark, despite persistent rate hikes by the Reserve Bank of India (RBI). In its latest mid-quarter review of the monetary policy in June, the RBI had hiked the repo rate by 25 basis points.

“We expect that the provisional June number will also be revised upwards once final data is available. In addition, the diesel price hike announced a few weeks back is expected to have a lagged effect forcing inflation to cross into double digit levels in the coming months,” said Anis Chakravarty, director Deloitte Haskins & Sells.

While the RBI is likely to go ahead with another round of rate hike, it is important to identify the pressure points in the economy giving rise to high inflation levels. There is a fear that inflation will become systemic,” added Chakravarty.

The figures released Thursday showed that the manufactured products index, the largest constituent of the wholesale price index — the barometer of price behaviour — inched up 0.1 percent, while the primary articles index rose by 2.8 percent.

The index of food articles too increased by 8.38 percent in June, while that for fuels rose by 12.85 percent.

Finance Minister Pranab Mukherjee said inflation continued to be a matter of concern and that the government was working with RBI “to take appropriate steps to reduce inflation to more comfortable level”.

“IIP data released for May and previous months is indicating impact of interest rate increases over the last 15 months. Oil prices leading to need for revision in fuel prices and impact of monsoon on agflation will have to be closely watched,” said Sudhakar Shanbhag, Chief Investment Officer, Kotak Mahindra Old Mutual Life Insurance.

Agflation refers to a phenomenon when generalised inflation is led by rise in agricultural commodity prices.

“In spite of lower growth numbers, RBI is expected to still lean towards controlling inflation and a 25 basis points hike is expected in the upcoming policy.”

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