Latest forecasts promise good news on the inflation front. India's wholesale price index (WPI)-based inflation is projected to come down to 9.6 per cent in the second quarter ending September 2010, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review here.
WPI inflation in the June 2010 quarter was 10.6 per cent, compared to barely 0.5 per cent in the same period a year-ago.
The decline is projected to continue in the subsequent two quarters too, to 8.1 per cent and 6.5 per cent in the quarter ending December 2010 and March 2011, respectively, CMIE said.
The decline will be partly brought about by a high base in the second-half of the preceding fiscal year. The other factors that are expected to keep inflation down include an expected surge in the 2010 kharif crop production and an increase in sugar output.
The Reserve Bank of India's response to rein in higher inflation has intensified in recent months. On July 27, RBI hiked the repo and reverse repo rates by 0.25 and 0.50 percentage points, respectively, to 5.75 per cent and 4.5 per cent. This was the fourth hike in the current calendar year.
The most important objective of the hike according to the Reserve Bank was to moderate inflation by reining-in demand pressure and inflationary expectations.
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The wholesale price index (WPI)-based inflation is expected to be at 8.5 per cent in FY11, compared to 3.7 per cent in FY 10.
"We expect WPI-based inflation to be 8.5 per cent in FY11, compared to 3.7 per cent in FY10," CMIE said.
Of the three segments, inflation in the fuel group is projected higher at 10.3 per cent in FY11, as against -2.4 per cent recorded in FY10. Likewise, inflation in manufactured goods is projected to remain higher at 6.4 per cent in FY11, compared to 3.2 per cent in FY10, the CMIE report said.
The current higher inflation originated from the supply -side on account of a decline in agricultural production in 2009-10 and increasing international commodity prices. The food item as a major source of inflation in FY10 has been replaced by fuel, textiles and metals in FY11.
In addition, higher inflation continued in commodities like milk, eggs, fish and meat. Administered prices of coal, sugarcane, iron ore, petroleum products, electricity and fertilisers have also been revised upwards between December 2009 and June 2010.