Inflation may remain well above 5% till Sept
The Reserve Bank of India’s (RBI) target of bringing down inflation rates to within 5% in 2007-08 would be anything but easy.
By Neha Kohli & Vidhika Arora , TNN |
NEW DELHI: The Reserve Bank of India’s (RBI) target of bringing down inflation rates to within 5% in 2007-08 would be anything but easy. An analysis of the wholesale price index (WPI) numbers shows that inflation rates are likely to be well above RBI’s comfort zone of 5% till September. The analysis is based on the assumption that the increase in the index will follow the trend in the last five years. While the base effect could bring down the inflation rates in the latter half of the year, it is still likely to hover around the 5% mark.
A five-year analysis of the trend in the movement of WPI shows that on a month-to-month basis, the deseasonalised index (obtained by removing the seasonal component from WPI) has been increasing by 0.44%. If we assume the trend to continue, the average inflation rate during the current fiscal would be close to 5.3%.
According to Crisil principal economist DK Joshi, the agency’s inflation forecast for 2007-08 is between 5-5 .5%. NCAER, too, has come up with a similar forecast, projecting average inflation at 5.3% for 2007-08 . “The analysis seems reasonable but the agriculture scenario that stands as the biggest unknown could alter that” said National Council of Applied Economic Research(NCAER) chief economist Shashanka Bhide.
Economic Advisory Council to the PM member Saumitra Chaudhuri is, however, of a different view. “There is good reason to believe that in the coming months there will be a dividend from the series of policy measures adopted and it is not unreasonable to expect a sub-5 % rate of inflation in the second half of the fiscal year,” Mr Chaudhuri said.
It is worth noting that the movement in the index last year was higher than the five-year average . In 2006-07 , the month-month increase in the index was faster at 0.5%, mainly because of soaring prices of agricultural and manufactured goods. If one assumes the trend in prices(and the index) to continue as last year, then the current fiscal year could end with an even higher average inflation rate of 5.8%.
There is, therefore, a likelihood that the inflation rates this year could fall within a range of 5.3-5 .8%, which would be nowhere close to RBI’s target , unless, of course, there is a sharp decline in the prices of primary articles or manufactured goods. However, since the economy is forecasted to grow by around 8.5% this year and demand is likely to remain strong, prices may not fall any time soon.
A five-year analysis of the trend in the movement of WPI shows that on a month-to-month basis, the deseasonalised index (obtained by removing the seasonal component from WPI) has been increasing by 0.44%. If we assume the trend to continue, the average inflation rate during the current fiscal would be close to 5.3%.
According to Crisil principal economist DK Joshi, the agency’s inflation forecast for 2007-08 is between 5-5 .5%. NCAER, too, has come up with a similar forecast, projecting average inflation at 5.3% for 2007-08 . “The analysis seems reasonable but the agriculture scenario that stands as the biggest unknown could alter that” said National Council of Applied Economic Research(NCAER) chief economist Shashanka Bhide.
Economic Advisory Council to the PM member Saumitra Chaudhuri is, however, of a different view. “There is good reason to believe that in the coming months there will be a dividend from the series of policy measures adopted and it is not unreasonable to expect a sub-5 % rate of inflation in the second half of the fiscal year,” Mr Chaudhuri said.
It is worth noting that the movement in the index last year was higher than the five-year average . In 2006-07 , the month-month increase in the index was faster at 0.5%, mainly because of soaring prices of agricultural and manufactured goods. If one assumes the trend in prices(and the index) to continue as last year, then the current fiscal year could end with an even higher average inflation rate of 5.8%.
There is, therefore, a likelihood that the inflation rates this year could fall within a range of 5.3-5 .8%, which would be nowhere close to RBI’s target , unless, of course, there is a sharp decline in the prices of primary articles or manufactured goods. However, since the economy is forecasted to grow by around 8.5% this year and demand is likely to remain strong, prices may not fall any time soon.
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neha.kohli@timesgroup .com Download
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