Easing of commodity prices on the basis of rise in agricultural produce this rabi season are likely to pull down inflation to 6.5% by May this year, the Institute of Economic Growth said in a report.
"In the short run, commodity prices may cool down. The area under rabi crops has gone up. The inflation is likely to marginally go below the psychological 8% mark in the next month," the report published by the institute said.
The WPI inflation forecasts are 7.97%, 7.52% and 6.56% for March, April and May 2011 respectively, it added.
Headline inflation in the country has been above 8% since February 2010.
The wholesale price inflation (WPI) last month was at 8.31%, which prompted the Reserve Bank to go in for another round of monetary tightening in its mid-quarterly monetary policy review last week.
The RBI, in the same meeting, hiked the short-term lending and borrowing rates (repo and reverse repo) by 25 basis points to 6.75% and 5.75%, respectively.
The apex bank has been resorting to rate hikes to manage the trade-off between growth and inflation.
However, the country's industrial production is set to decline sharply to 2.01% by April this year, according to the report.
"Unless the supply constraints are progressively reduced, the growth may retard in the manufacturing sector," the institute said.
Further, the crisis in the West Asia is also aggravating the problem, with high oil prices, it added.
Based on its assessment of the economic situation in the country and elsewhere, the institute has projected the IIP (index of industrial production) growth rate for the months of February, March and April at 5.50%, 3.18% and 2.01%, respectively.
IIP growth rate stood at 3.7% in January 2011.
Although the West-Asia crisis and the natural catastrophe in Japan are worrying signs in the short run, the growth in advance tax collection and exports is a positive sign for industrial growth, the report said.
