Barclays Capital today revised India's wholesale inflation forecast for 2010-11 upward to 8.25 per cent on account of the recent fuel price hike.
"We raise our WPI (wholesale price index) inflation forecast for FY10-11 to 8.25 per cent from 7 per cent previously," the investment banking division of Barclays Bank Plc said.
The recent hike in fuel prices is likely to increase inflation by 100-150 basis points (1-1.5 per cent) for the non-food manufacturing sector over the next three months, it said.
Barclays added that non-food manufacturing inflation will remain a source of concern during the next six months.
"The recently announced fuel price hike will apply further pressure. We expect a second order impact of 100-150 basis points on non-food manufacturing inflation in the next three months," it said.
Finance Minister Pranab Mukherjee had stressed earlier this week that the impact of the fuel price hike would be less than 1 per cent on overall inflation.
The government had late last month hiked petrol prices by Rs 3.5 a litre, while deregulating them. In addition, the price of diesel was raised by Rs 2 a litre, that of LPG by Rs 35 a cylinder and kerosene by Rs 3 a litre.
Barclays said, meanwhile, that overall inflation will remain above double-digits till July and over 8 per cent until October.
"By December, assuming monsoon rainfall is plentiful, falling food inflation and lower non-energy commodity prices should bring WPI inflation close to 6 per cent...," it added.
While food inflation eased marginally to 12.63 per cent for the week ended June 26, from 12.92 per cent in the previous week, fuel inflation jumped to over 18 per cent during the week. Overall inflation for May stood at 10.16 per cent.
Regarding food prices, Barclays said: "The outlook for food prices remains contingent on monsoon rainfall. We believe food prices will continue their descent if monsoon rainfall turns out to be normal."
It added that the RBI is likely to go for a 25 basis points hike in the short-term lending and borrowing rates at its monetary policy review on July 27.
