The wholesale price inflation, a measure of rising costs, rose to 10.16 per cent in May due to high food and fuel prices. With inflation crossing the double digit figure, it is expected to put pressure on government to delay any decontrol of fuel prices.
“Inflation in double digits will act as a deterrent for the government to move on the decontrol of fuel prices,” said Dr Rupa Rege Nitsure, chief economist, Bank of Baroda. Crisil, chief economist, Mr D.K. Joshi said “It is not going to happen quickly.”
However, Dr Nitsure said that it was an appropriate time as international fuel prices are still low. “If they miss this opportunity it is difficult for them to get it in future,” she added.
The chief economic advisor, Mr Kaushik Basu also favoured some decontrol in fuel prices. “I feel that a certain amount of decontrol ought to be done. Inflation may increase in the short-term, but in six months, it may in fact come down due to the lower fiscal deficit.”
What is worrying policy makers is that the inflation is now getting generalised. Initially, it was felt that the food prices will start coming down once the rabi crop hits the market. “It means that there are still supply side issues. There was good wheat production during rabi season but there are other crops also. The government had been raising the minimum support prices (MSP) and this will also impact food prices,” said Mr Joshi. Citi said given that globally there are issues that are unsettled, and the first week’s monsoons trends are six per cent below normal, “we expect the odds favour RBI to wait till its July 27 policy.” The government has revised upwards the March inflation figure to 11.04 per cent from the earlier estimate of 9.90 per cent.