The first series of monthly wholesale price index (WPI) data showed that headline inflation rose marginally to 1.34 per cent in October, primarily due to a year-on-year increase in fuel prices. The inflation rate was 0.5 per cent in September and 11.06 per cent in October 2008.
“Inflation is building up from the supply side with a poor summer crop and rise in global fuel prices. Demand side pressures might start showing from December,” said NR Bhanumurthy, economist at National Institute of Public Finance and Policy.
“We expect monthly inflation at 7.8 per cent by the end of March 2010,” he said.
In its policy review last month, the Reserve Bank of India (RBI) lifted its inflation forecast to 6.5 per cent for the end of the current financial year but left policy rates unchanged.
RBI also laid the groundwork for a rise in interest rates by tightening credit to the commercial property sector and removed some of the emergency liquidity support steps that were extended to protect the economy from the global downturn.
However, analysts and top government officials have indicated that the stimulus rollback will take place in the next financial year. The inflation rate for fuel products rose by 1.63 percentage points to -6.55 per cent. The rate of rise in prices of manufactured products also rose marginally by 1.1 percentage points from September to 1.36 per cent in October.