Inflation to drop down in FY 13

29 November 2011: While the ultimate impact of rupee depreciation on the economy will depend on what happens to the dollar price in relation to the international commodity market, the economy’s medium-term trajectory on the inflation front is going to be at six per cent level in FY 13. Any depreciation (of rupee value) will have an impact on import prices. Obviously, important commodities such as oil in rupee terms will cost more as a consequence. But the ultimate impact on the economy will also depend upon what happens to the dollar price with regard to these commodities.

There is a possibility that if the world economy does not grow strongly, then perhaps the international commodity prices could also come down. Therefore, one will have to take into effect the impact of growth on the international commodity prices and also what happens as a consequence of depreciation to know the final impact But it is very difficult at this point to say what the exact impact on inflation will be. On the whole, we have to move towards a situation where inflation starts to decline. Our own estimate is that inflation will start declining from this month onwards. We will see a significant change in the first three months of the next calendar year. As a consequence, we could get to the seven per cent level by March 2012. On whether the Reserve Bank of India’s aim of reaching five per cent inflation level was possible in the medium-term. The food inflation was coming down as the monsoon had been good and was expected to be carried further. Referring to a 60 per cent jump in vegetable prices in January because of the unseasonal rains this year. With the moderation in vegetable prices in those three months, the food inflation will definitely show signs of decline. Food inflation had eased to 9.01 per cent last week from 10.63 per cent in the previous week. The same was 11.81 per cent in the last week of October.

Source: Business Standard