Brace yourself for double-digit inflation again

NEW DELHI: As if the sharp of petrol price by Rs 5/litre on Saturday was not enough, Monday brought the frightening prospect of double-digit inflation coming to your door soon, fuelled this time largely by a spike in manufactured goods.  There is already strong inflationary pressure in the economy and it is unlikely to come down soon as is evident from RBI's recent interest rate hike. On top of this, there is the impending increase in diesel prices, which is bound to send the prices of many goods and commodities upwards. A Rs 3 hike in diesel prices would add 25-30 basis points to inflation (100 basis points equals percentage point).  While inflation based on wholesale prices rose 8.66% in April, after being moderated from the upwardly revised 9.04% in March, wholesale prices data released by the government showed that the economy faces strong inflationary pressures. The government also revised the February inflation number to 9.54% from the previously reported 8.31%. "This suggests that latent inflationary pressures in the economy are strong. In view of such large revisions, the final March 2011 inflation figure (to be published next month) could well be close to 10% year-on-year," Barclays Capital said in a research note. The RBI had estimated inflation to be around 8% by end March but indications are that its projections would be missed by a wide margin. RBI has raised interest rate nine times since March 2010 to control price pressures and has said it is ready to sacrifice growth in the short term to tame inflation. Economists expect the RBI to raise rates again when it meets for its policy review.  Oil marketing firms on Saturday raised petrol prices by Rs 5 per litre which is expected to heap more pressure on household budgets. Milk producers have also raised prices and there is talk of an increase in diesel and cooking gas prices. All this will add to the pain of households.  "March itself can show double-digit inflation if the trend of upward revisions continue. Inflation is not going away any time soon. We expect the RBI to raise interest by 25 basis points in June and in August with upward bias and there could be another hike after that," said Samiran Chakraborty, economist at Standard Chartered Bank. Finance Minister Pranab Mukherjee said inflation in non-food articles is a continued source of concern. It remains elevated at over 27% in April 2011, he said, adding that he was not comfortable with the level of inflation despite "welcome signs" of moderation in April. The government also said the WPI new series had a programming error and the WPI for metal products was not getting incorporated in the index of basic metals, alloys and metal products and manufactured products. As a result of this correction, the rate of inflation for March, 2010 has increased from 8.98% announced earlier to 9.04% and the rate of inflation for April, 2011 without the correction would have been 8.53% as against 8.66%.