Rangarajan sees inflation falling to 10% by December

NEW DELHI: Expressing optimism that the improved industrial growth in July would continue in the days ahead, Rajya Sabha member and former head of the PM���s economic panel C Rangarajan has said inflation may also come down to 10% by December from over 12% at present.

After a dismal performance in the previous two months, the industrial growth recovered to 7.1% in July on account of resurgence in capital and consumer durable goods sectors.

���My estimate is that probably by December, inflation rate may go down to 10%,��� Mr Rangarajan told reporters on the sidelines of a Ficci seminar on financial inclusion here on Monday.

The former RBI governor said inflation last year was moderate towards the end of December, so base effect will heighten inflation in the current year. The base effect relates to the impact on inflation because of its level in the year-ago period. If inflation is low in the year-ago period, the comparative inflation in the current year would look higher. Inflation stood at 12.1% for the week ended August 30 despite moderation for the third week in a row.

On recovery in industrial growth in July, Mr Rangarajan said: ���Apparently there is some improvement in industrial production. I think this will continue.���

There would also be some base effect in the later part of this year, which would push up industrial production, he added.
When asked if the industrial growth results in July could be taken as the blip, he said: ���On the whole, I would think there is a positive sign. It should be interpreted as better performance and that would be sustained over the rest of the year.���

HSBC India country head Naina Lal Kidwai said even though international crude oil prices are low and food prices are cooling off, the graph of inflation still needs to be monitored between now and March, which is a very critical period of the current fiscal. ���The good news is inflation looks like it is cooling off,��� she said.

Almost 60% of average household spending is on food and so it is very important that food prices abate, Ms Kidwai said. Even though inflation stood at 12.1% for the last week of August, the rate of price rise for primary food articles at 4.6% was lower compared with the inflation of 7.1% a year, according to a finance ministry statement. ���Inflation is looking like it is going down but it is still not a sustained movement down,��� Ms Kidwai added.

Projections from the government suggest that inflation will be around 7-8% in March, she said, adding some of it is because of the base effect.