Inflation to touch 9.5 percent: Rangarajan (Second Lead)

June 19th, 2008 - 11:27 pm ICT by IANS  

By Fakir Balaji
Bangalore, June 19 (IANS) The steep hike in fuel prices the government announced this month would push up the inflation rate to 9.5 percent this week and could even touch double digits later, Prime Minister’s Economic Advisory Council Chairman C. Rangarajan said here Thursday. “The impact of the fuel price hike of June 5 will be seen in the inflation rate tomorrow (Friday), when the central government releases data on the weekly inflation rate,” Rangarajan told IANS after delivering the Sir Vittal N. Chandavarkar memorial lecture on ‘The Indian Economy: Challenges Ahead’ at the Indian Institute of Science (IISc).

“The rate may touch double digit in the coming weeks,” he said.

According to official data released June 13, the inflation rate surged to a seven-year high of 8.75 percent for the week ended May 31. When the hefty fuel price was effected a fortnight ago, analysts feared the inflation rate would only move upwards, with transportation costs impacting wholesale and retail prices of goods and commodities.

Elaborating on the impact, Rangarajan said the inflation rate would reflect the 10 percent hike in fuel prices on the Wholesale Price Index (WPI). The fuel price hike will get incorporated in WPI, he said.

“As a result of higher fuel prices, if prices of food articles, goods and services go up, the inflation rate will touch double digit in the coming weeks,” Rangarajan said.

“The inflation rate will continue to remain high at 8 to 9 percent till December (this year) because of the base effect. If oil prices rise further, as feared in some quarters, economy is going to be in serious trouble,” he said.

In the long-term, however, Rangarajan expected the inflation rate to moderate and decline to around 7 percent by March 2009 even if oil prices remained high.

Agriculture has recorded a 4.5 percent growth in 2007-08 and food procurement has been higher, particularly that of wheat at 32 million tonnes so far as against 11 million tonnes in 2007.

“If monsoon is good, as projected, it will dampen the inflation rate over the next five to six months,” Rangarajan added.

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