The annual rate of inflation based on the wholesale price index (WPI), which has been surging for the last two weeks, is expected to peak at 6.5 per cent. This is after taking into account the increase in prices of foodgrains distributed through the public distribution system.
Disclosing this, senior government officials maintained that, provided there were no unexpected shocks to the economy, the average inflation rate in the economy would be around 6 per cent for the year. According to them, the core rate of inflation has remained around the 3 per cent to 4 per cent mark.
Officials said the sudden increase in inflation rates witnessed over three weeks ended April 22, was due to the one-shot increase in administered prices.
The reorganisation of the WPI to a new base-year only reinforced the trend. "There is nothing to worry about the current level of inflation rate. Since the core rate of inflation remains unchanged," they added.
Significantly, economists concurred with the government's view. They said since the core rate of inflation was within reasonable levels, the sharp increase in the index was not indicative of any serious imbalance in demand and supply levels in the economy.
"Food articles and manufactured product prices have been on a declining trend over the past few weeks," said Saumitra Chaudhuri, economic advisor, Investment Credit Rating Agency. "The rise has been mainly on account of increased prices of electricity and mineral oils," he adds.
The core rate of inflation, according to him, is only around the 2 per cent mark. "If the government feels inflation is going out of hand at any point of time, it can always postpone its administered price increases," said Subir Gokran, chief economist with the National Council for Applied Economic Research.
Inflation for the week ending April 22 was 6.1 per cent. Prices in the fuel, power, light and lubricants category have gone up by 26 per cent over the year.
The weight of this group has increased from 10.67 per cent under the previous index, with 1981-82 as the base, to 14.2 per cent in the new index.
The annual point-to-point inflation in primary commodities was only 2.74 per cent, while the manufactured products category experienced 2.4 per cent inflation over the year. The two account for around 86 per cent of the index. Prices of mineral oils and electricity have increased by around 45 per cent since the beginning of this fiscal.
The inflation rate was expected to be higher this year and most of the increase has come about because of the alterations brought about in the wholesale price index.
In the new index, with base 1993-94, the weight of primary commodities has fallen from 32 per cent to 22 per cent, while the weight of manufactured products has risen from 57 per cent to almost 64 per cent.
The sharp increase in inflation levels in the fuels segment is partly because crude oil has been shifted from the primary articles category to the sub-group of fuels.
