The Prime Minister's Economic Advisory Council (PMEAC) today warned that inflation could go beyond rising food prices next fiscal and advised the central bank to be prepared for such an eventuality.
In its economic review for 2009-10, the PMEAC projects inflation, which had come down even to negative zone earlier this fiscal, at 8.5 per cent by the end of this fiscal. The review also points towards the potential of rising commodities prices globally due to revival in developing countries and unsettled financial conditions.
The RBI projected inflation to be 8.5 per cent by March-end and retained its projection yesterday, even as inflation already breached this level in January touching 8.56 per cent.
The PMEAC also expects inflation to slightly come down by February-end or March. "It is true that inflation build-up has breached the RBI projection of 8.5 per cent. February and March could see decline in prices. We will probably go with the RBI more or less close to 8.5 per cent," PMEAC Chairman C Rangarajan told reporters after releasing the report.
The review says while inflation currently is mostly confined to food items, there is a danger of it spreading to manufactured items as well and asks RBI to remain alive to this factor. However, food inflation may cool down in next two-three months with the arrival of winter harvests.
"The danger of food inflation spreading to other commodities certainly exists, especially in the backdrop of the strong economic recovery," it said and asked the RBI to remain alive to this danger.