Inflation to moderate to 6.5% by March-end

The Prime Minister's economic advisory panel today said it expects inflation to moderate to 6.5% by the end of the current fiscal from 9% at present despite a likely increase in fuel prices.

"If the monsoon is normal, then the food inflation will come down. However, the fuel prices could go up. Allowing for some increase in fuel prices, inflation could come down to 6.5% by the end of this fiscal," Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan told PTI.

Rangarajan also expects headline inflation in April 2011 to decline from 8.98% in the previous month. However, he expects inflation to remain high in the next few months.

"The April inflation will be somewhat lower than March inflation. But inflation will remain at an elevated level in the next few months," Rangarajan said.

He also pitched for a "substantial" increase in prices of petroleum products in line with the rising crude prices in the international market.

Persistently high inflation has started affecting the country's economic growth, with the RBI projecting a GDP growth rate of around 8% in the current fiscal as against the government's earlier estimate of 9%.

Food inflation dropped to 7.7% for the week ended April 30, the lowest level in the last 18 months, due to a fall in the price of pulses and vegetables, especially potato.

The Reserve Bank has been trying to rein in price rise by raising its lending (repo) and borrowing (reverse repo) rates. The RBI has hiked key rates nine times since March 2010, to balance the trade-off between growth and inflation.

The central bank raised both rates by 50 basis points in its annual credit policy review on May 3.