Industry chamber Assocham expects WPI inflation to surge to double digits by this fiscal-end, much higher than the Reserve Bank of India's (RBI) projections of 8.5 per cent, because of rising prices of steel, cement and coal due to short supply.
So far, spurt in food prices have fuelled inflation, but it is being spread to manufactured items which would raise the overall rate of price rise as well, Assocham said.
"Adding to pressure of soaring food prices... Inflation may firm up further to double digits with prices of key industrial inputs like cement, steel and coal seen hardening due to demand-supply mismatch," according to a study.
The study attributes rising prices of cement, steel and coal to the widening output gap between overall industrial production and six core infrastructure industries.
While overall industry grew by 11.7 per cent in November, output of six core industries, including these three commodities, expanded by 6 per cent.
The six core industries contribute over 25 per cent of industrial production, which means the rest of the industry expanded much faster than these core sectors in November.
In its monetary review, the RBI recently raised its projection for inflation to 8.5 per cent from earlier 6.5 per cent by this fiscal-end.
In the month of December, inflation stood at 7.31 per cent.
The study said the government should improve agriculture supply chain to prevent food inflation seeping into the core inflation substantially.
Ignoring the demand-supply balance, the dismal growth in production of key industrial inputs like finished steel, cement and coal has raised concerns over the price stability of their end products, it said.
Further, the study said, cement prices in the country are expected to firm up as demand from state projects and housing sector activity may pick up significantly, while steel prices would rise on account of increased demand from the auto and construction sector.
It said that domestic price for coal would go up as increasingly growing demand for power generation is expected to create an acute shortage of the commodity.
