22 June:Inflation is expected to come down to 5.5 percent in financial year 2008-09 and kharif crop is likely to play a major role in this regard, says the Centre for Monitoring Indian Economy.
"We retain our forecast of 5.5 percent inflation for the year FY ’09. We expect inflation to increase further in the next couple of months and start receding from September onwards," CMIE said in its monthly review adding that kharif crop is expected to play a major role in this moderation.
Inflation, measured in the Wholesale Price Index (WPI) increased to 11.05 percent for the week ended 20th June.Inflation started rising rapidly since January 2008 and went up by 441 basis points in a span of just five months.
The Government partially passed on the burden of rising international crude oil prices to the Indian consumer by hiking prices of petrol, diesel and LPG earlier this month, which accounts for 4.91 percent of the WPI.
Price hike of petrol, diesel and LPG is expected to push up headline inflation by 50-60 basis points, CMIE said.Although inflation is at a high level, it is unlikely to pinch Indian consumers as badly as suggested by the WPI numbers, it said.
The rapid rise in inflation, witnessed in the past five months, is not across all heads of the WPI.
Nearly 85 percent of the rise in headline inflation has come on account of the sharp rise in prices of select items–basic metals alloys and metals products, primary and manufactured food articles, oilseeds and minerals and mineral oils.
The share of primary and manufactured food articles is 26.3 percent and that of mineral oils and the metal group is 21.1 percent and 29 percent, respectively.
CMIE believes the rise in wholesale prices of minerals, mineral oil and metals has only partially penetrated to the consumer level.
The direct impact of the inflation in metals is faced by the user industries including real estate, machinery and automobiles.These industries are currently enjoying healthy profit margins of 7-15 percent and in a position to absorb the rise in raw material prices.
The companies which have hiked prices of their offerings have also not passed on the complete burden of the rise in raw material prices to the consumer, it said.
Similar is the case with aviation companies who are bearing the brunt of the rise in prices of aviation turbine fuel.These companies are not able to pass on the rise in fuel prices completely to the consumer.
However, rise in prices of food products, both primary and manufactured would impact consumers.
Inflation in primary food articles has gone up from 1.77 percent at the end of December 2007 to 5.72 percent on 24th May 2008 and that in manufactured food products has risen from 3.92 percent to 11.67 percent during the same period.
However, this rise is not seen across all primary and manufactured food articles, it said. Courtsey:DD NEWS