Inflation based on the wholesale price index will reach four per cent by the end of October, feel economists.
As one of the first tasks facing the new government will be to increase oil/petrol prices, inflation is likely to be pushed up to around four per cent by the end of October, says Saumitra Chaudhuri, economic advisor at Investment Information and Credit Rating Agency (ICRA).
Subir Gokarn, chief economist with the National Council for Applied Economic Research (NCAER) agrees.
By the middle to the end of November, the new government will have to take some serious steps to plug the oil pool deficit, he says. Also, with the harvest looking pretty bleak this year, energy and food prices should push up inflation, he adds. He expects inflation to bottom out at 4-5 per cent on an average in the post Diwali period.
The monthly monitor brought out by the Institute of Economic Growth (IEG) forecasts the WPI- based inflation to reach 2.78 per cent in October and 3.28 in November. The forecasts are based on the data available till August 1999.
Inflation had touched its lowest figure in 17 years when it stood at 1.19 per cent (provisional) for the week ending July 24.
The actual rate of inflation, however, never really touched the 1.19 per cent level. The rate of inflation based on the final index for wholesale prices shows that the inflation rate was actually 2 per cent for the week ending July 24.
The differential between the provisional and final figures has in fact increased sharply since the week ending May 29. This means that inflation was never really as low as has been reported in the provisional figures for the past few months.
While there has always been a difference of about half a percentage point between the provisional and final figures of inflation, this difference has been rising sharply since May this year.
Economists, however, do not read much into this differential. It could be a problem of delay in data collection. Moreover, it is not the differential, but what causes it that is important. If inflation was low due to low commodity prices, the differential is explainable because commodity prices are adjusted more regularly, says Gokarn.
Adds Prof BB Bhattacharya of IEG, "it is the differential between the CPI and WPI which is more alarming.
"The widening spread between the two last year means that something is wrong."
Actual inflation rates may be closer to the CPI rates than the WPI-based rates, he adds. The WPI may well be underestimating the inflation rate.
The actual inflation is probably closer to the trend rate than to the two per cent mark, he adds.
