Stubborn inflation: Here's why economists are getting edgy

September inflation came in at an ugly 9.7%. The only relief was that the number was not uglier than expected. Economists note that the prices of non-food manufactured products have risen more modestly that they did in previous months. Nevertheless a rate hike in the next RBI policy meeting on October 25 seems imminent. CNBC-TV18's Latha Venkatesh and Gopika Gopakumar report. The big push comes from food prices, which rose by 1.4% over their August levels; primary articles which rose by 1.3% month-on-month and fuel prices which rose by 0.84%. The positive was that manufactured products rose by only 0.2% over August, and excluding food products, the manufacturing index was up only 0.1%. Yet policy makers worry that the trajectory is still a rising one and the headline inflation is too high for too long. C Rangarajan, Chairman, PMEAC said, "The number is not very encouraging. The inflation rate more or less remains at the same level as the previous month and therefore, it is not a very comfortable situation. It's not an easy decision to make because there are no definite signs of decline from the inflation picture. So long as the headline inflation remains so high, well above 9%, I would think monetary policy has still a role to play in containing demand pressures." Economists also worry that given the rise in rail freights and electricity tariffs the inflation levels in October and November may also remain well above 9%. Gaurav Kapur Senior Economist, RBS said, “We are expecting headline inflation to hover over 9% for the next couple of months at least. In October-November, you would most likely see numbers hovering above 9%. December onwards, when the base effect comes into play and comes into play very significantly, you will see numbers coming off.”  There is a hope that with the harvest coming into the market in October, global commodity prices falling and Indian growth faltering we may see a fall in the momentum of inflation. But not every one is sure. Post October 25, the RBI may continued to be faced with the cruel dilemma of falling growth and high inflation.

Moneycontrol