India’s headline inflation rate is likely to hover at 8 to 9 percent for some time and will hit double digits before declining in the last quarter of calendar 2008, its chief statistician said on Tuesday.India’s most widely watched inflation measure, the wholesale price index (WPI), is already at a seven-year high of 8.75 percent and the Reserve Bank of India (RBI) unexpectedly raised its key lending rate last week to 8.0 percent in an effort to calm prices.
Economists expect the impact of a hike in government-set fuel prices early in June will push the WPI to a 13-year peak above 9 percent this month. The early June data is due this Friday.
Pronab Sen, secretary at the ministry of statistics and programme implementation, told Reuters in an interview primary price increases had been factored in but second-round increases were now coming through into the inflation numbers.
"Numerically, I suspect it’s going to hang around at somewhere between the 8 and 9 percent mark for a while," Sen said.
Asked if inflation would reach double digits, he replied: "It will touch it but it’s not likely to stay there for very long."
Rising costs of raw materials, food and energy worldwide have stoked prices in Asia’s third-largest economy, prompting the government to ban some exports and slash some import duties to keep supplies up and prices down.
Inflation is well above the RBI’s comfort zone of 5.5 percent and is posing a major policy headache for the communist-backed ruling coalition in the run-up to key state and federal polls later this year and in 2009, as rising prices hit the poorer members of the population the hardest.
BACK TO TREND
India’s economy grew 9 percent in the fiscal year which ended in March and Sen said growth was moderating.
"Now we are starting to taper down to the trend and the trend would be somewhere between 8 and 8.5 percent. So I suspect we’ll be there somewhere."
But he added that with inflation and efforts to control it, as well as a global slowdown, growth might drop below trend.
"We might actually overshoot on the downward trajectory a little bit, so we might dip slightly below 8 percent but eventually we’ll catch up."
The economy has averaged 8.8 percent in the past four years. The RBI expects it will expand at 8-8.5 percent this fiscal year to March, while some economists and policymakers say it could be lower.
On prices, Sen said the peak would depend on how soon demand was compressed and when new industrial capacity came on stream.
"So I’m really looking at the last quarter of the calendar for it to start coming down."
Demand was hard to gauge because of lack of data but there was some evidence of moderation in fast-moving consumer goods and white goods, he said.
Except for steel, capacity was being created across sectors, including pharmaceuticals, auto components, autos and cement, while capital goods, such as engineering plant and machinery, had gained in strength after a late start to capacity addition in 2006.
Inflation eased quickly in late 2007, dropping to just above 3 percent, and Sen said that base effect would give the headline rate an artificial "push-up" at the same time this year.
Where it ended the fiscal year next March would depend on the government’s policy on domestic fuel prices, he said.
"A lot depends on what is done on oil prices and that’s a policy matter," he said.
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