Inflation will moderate to 6.5% by March-end: PMEAC

“If the monsoon is normal, then the food inflation will come down. However, the fuel prices could go up. Allowing for some increase in fuel prices, inflation could come down to 6.5 per cent by the end of this fiscal,” Prime Minister Economic Advisory Council (PMEAC) Chairman C Rangarajan said.

Rangarajan also expects headline inflation in April 2011 to decline from 8.98 per cent in the previous month. However, he expects inflation to remain high in the next few months. “The April inflation will be somewhat lower than March inflation. But inflation will remain at an elevated level in the next few months,” Rangarajan said.

He also pitched for a “substantial” increase in prices of petroleum products in line with the rising crude prices in the international market. Persistently high inflation has started affecting the country's economic growth, with the RBI projecting a GDP growth rate of around 8 per cent in the current fiscal as against the government's earlier estimate of 9 per cent.

Food inflation dropped to 7.7 per cent for the week ended April 30, the lowest level in the last 18 months, due to a fall in the price of pulses and vegetables, especially potato.

The Reserve Bank has been trying to rein in price rise by raising its lending (repo) and borrowing (reverse repo) rates. The RBI has hiked key rates nine times since March 2010, to balance the trade-off between growth and inflation.

The central bank raised both rates by 50 basis points in its annual credit policy review on May 3.

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