Inflation numbers to abate by year end: Experts

RELATED NEWS PM sees 8.5% growth 2010-11, prices softer Agri inflation may come down to 6-7%: Pronab Sen Food price index up 16.49% y/y: Govt

The government attaches the highest priority on containing inflation, according to Prime Minister Manmohan Singh's draft speech on Monday.

Singh was speaking at a rare news conference in New Delhi marking the first year since the Congress-led coalition government was reelected to a second term.

It is only one of a handful of full press conferences he has given since first coming to power in 2004.

Arun Kejriwal, Director of Research Firm Kris, Mumbai

"What they are expecting and what the reality is are two different things. It does not look like inflation will come down to 5-6% by December."

Sujan Hajra, Chief Economist, Anand Rathi Fin Services, Mumbai:

 "My estimate is 5 to 6% by December and 4% to 5% by March 2011. If you look at food prices, the inflation was 22% in November, which has come down to 14-15% now."

"Going forward, we see it coming down further. This inflation will come off very significantly. Food, both manufacturing and primary, has a 26 percent weightage which is close to 6 percentage points for food."

Anjali Verma, Economist, MF Global, Mumbai:

"Inflation at 6% by December is possible as food inflation should fall assuming that the monsoon is going to be normal as per the forecast. Also assuming that global economy does not recover substantially, commodity prices will remain muted and keep manufactured commodity prices contained."

Rupa Rege Nitsure, Chief Economist, Bank of Baroda, Mumbai:

"Going by the current trends in non-food price inflation and uncertainty about fuel prices, it looks difficult for India to see inflation coming down to 5% by December."

Market reaction:

The yield on the benchmark 10-year 7.80% 2020 bond was steady at 7.43% from before the prime minister's comment on inflation, growth. The 2020 bond had ended at 7.38% on Friday. The partially convertible rupee was steady at 46.65/66 per dollar from beforehand. It had ended at 46.95/96 on Friday.

The benchmark five-year overnight indexed swap was at 6.40/44 percent. It had ended at 6.36/38 people  on Friday.

The benchmark BSE share index was at 16,655.69 points, up/down 1.2% from Friday.

Background:

- The food price index rose 16.49% in the year to May 8, while the fuel price index rose 12.33%. Food prices inched up compared with the previous week's annual rise of 16.44%, while fuel prices held steady.

- Wholesale prices, the most closely watched inflation gauge in the country, eased in line with expectations to 9.59% in April from a year earlier.

- Industrial output in March grew in double digits for the sixth straight month, rising an annual 13.5%, providing further evidence of a strong rebound in the economy.

- A robust economic growth has raised the prospects of capacity constraints, which are seen aggravating price pressures.

- The central bank has described the inflationary situation as "worrisome" with asset prices and demand pressures picking up.

- The Reserve Bank of India (RBI) has raised key rates by a total of 50 basis points since mid-March, and analysts expect a 25 basis points rise on July 27 when it reviews policy.

- Subir Gokarn, a deputy governor at the RBI, has said manufacturing inflation would determine the central bank's future policy moves.

- The RBI expects inflation to ease around mid-2010 on a normal monsoon and moderation in food prices and has forecast the March 2011 WPI inflation at 5.5%.

- The economy is expected to expand 8.5% in the current fiscal year that started on April 1, after an estimated growth of 7.2% in the previous year.