Inflation to remain elevated; cut stand at 8% by Mar 2012:Citi

The 8 per cent projection for March 2012 is higher than the 6-7 per cent forecast by the Government. The Reserve Bank had also earlier said that it expects headline inflation to moderate to around 6 per cent by end of the fiscal.

"We... expect headline inflation to average 9-9.5 per cent (in 2011-12) with the March reading likely at 8 per cent as against the RBI's estimate of 6 per cent," Citi India said in its 'India Macro Flash'.

It further added: "We maintain our view that prices will remain elevated due to upward revision in minimum support prices of agri crops which sets a floor to market prices, continued upward revisions to past data and the fact that while commodity prices have eased, they are relatively higher than last year".

Headline inflation, as measured by Wholesale Price Index (WPI), stood at 9.44 per cent in June, up from 9.06 per cent in May.

In recent months, the inflation data has seen frequent revisions including for April which was revised to 9.74 per cent from the initial estimate of 8.66 per cent. The revisions have put further pressure as the revised numbers soar much above the initial estimates. Besides, the government had last month increased the support price of paddy to the farmers by Rs 80 per quintal for the current Kharif season. It had similarly increased the MSP of pulses, oilseeds and cotton.

The government has also been under pressure on account of high global commodity prices, particularly of crude.

Crude has been trading around USD 100 per barrel for some months due to conflict in Middle East and North Africa though the pressure has declined somewhat in recent weeks.

Citi also said it expects RBI to go for another round of interest rate hikes at its July 26 quarterly policy review.

"With the WPI is likely to remain elevated at over 9 per cent levels in the coming months and the RBI re-iterating that inflation is likely to get priority over growth, we maintain our view of the RBI hiking rates by a further 50 basis points by December. Odds thus favour a 25 basis points hike on July 26," Citi said.

The RBI has already hiked its key policy rates ten times since March 2010 to curb demand and tame inflation.

Last week, the government admitted that inflation would remain high at least till December, before moderating to around 6-7 per cent by March 2012.

In its annual monetary policy for 2011-12, the RBI had also projected inflationary pressure to continue during the first half of this fiscal and average around 9 per cent