July inflation seen climbing to double digit

The inflation numbers for July will be released on Tuesday. “Though global commodity prices have declined in the past week it is still to early to factor that into inflation. On the other hand, the spillover of the domestic fuel price hike of May will continue to have some impact and so headline inflation in July could be close to 10 per cent,” Deloitte, Haskins & Sell director Anis Chakrabarty said.

The near double digit inflation, he added, could prompt the Reserve Bank to continue with its tight monetary policy which it had been following since March 2010.

“In such circumstances further rate hike cannot be ruled out,” Chakrabarty said. Inflation, as measured by the Wholesale Price Index (WPI), stood at 9.44 per cent in June. Inflation has been above the 9 per cent mark since December last year.

The Reserve Bank has hiked its key policy rates 11 times since March 2010 to tame the rate of price rise. India Inc has said that repeated rate hikes have affected investments by raising borrowing cost. “Inflation will be close to 10 per cent for July.

As per our estimates, it will be around 9.8 per cent,” Crisil Chief Economist D K Joshi said. Factors like high price rise of food and manufactured items will contribute to the rise in inflation. “Inflation is now broad based and not confined to any specific segment of the WPI pie,” Joshi said.

He said there is a high probability of RBI going for hike of 25 basis points in its rates in its September 16 mid-quarterly policy review. “A reversal in the RBI’s monetary stance and focus on inflation management in the near term is unlikely, unless there is a sharp and sustained downtrend in commodity prices,” ICRA economist Aditi Nayar said.