The Hindu Business Line : Worst is yet to come; inflation may cross 10%

NEW DELHI: The worst is yet to come for the present UPA regime with economists projecting that inflation would cross the double-digit mark in the coming weeks.

"Once fuel price hike is reflected in the index, the rate may go up to 10 per cent," Mr Abheek Barua, Chief Economist, HDFC Bank said.

The Government increased the prices of petrol by Rs 5 per litre, diesel by Rs 3 a litre and domestic cooking gas by Rs 50 a cylinder with effect from June 5.

According to Mr M S Srinivasan, Petroleum Secretary, the hike could lead to about 0.5-0.6 per cent rise in inflation rate.

The impact of the fuel price hike will be reflected in the inflation data to be released next week. Inflation rate has already touched 8.75 per cent, the highest level witnessed during the UPA regime. The previous high of 8.77 per cent was recorded in F ebruary 2001.

Apart from supply constraints, Mr Barua said the increased domestic demand was adding to the inflationary pressure.

"The current inflation rate was not only supply driven but domestic demand pressures have also started building up," he said.

Similar views were expressed by Mr D K Joshi, Principal Economist - Crisil, who said that inflation in the coming weeks would go up because of the fuel price hike and also on account of base effect.

As regards the Reserve Bank's recent decision to increase short-term lending rate to check price rise, he said it is aimed at containing future demand and may not have any effect on the current inflation. - PTI

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