Prices to rise after fuel-price hike, before slowing down by end of the year: FICCI survey

Inflation will remain high for most of the year and the domestic product (GDP) will fall to 8%, according to a survey of economists by FICCI.

Unlike the earlier target of around 5% for the yearly price rise (inflation), the economists now accept a “new normal” for inflation — around 7-7.5%, the survey said. Current inflation levels are at around 10%, but in what may come as music to many people’s ears, almost all the economists expect this figure to come down to the ‘new normal’ by the end of the year.

“A majority of the economists felt that the RBI should stop its current anti- inflationary rate hikes when the inflation moderates to around 7 per cent to 7.5 per cent,” FICCI said.

The rising prices are the primary reason for the expect decline in India’s economic growth. FICCI’s surveys have consistently maintained a slight dip of around 0.6% in India’s growth rate this year compared to the last one.

However, this decline will come only after another bout of increase in prices by around September, because of the expected increase in diesel, LPG and kerosene prices and supply shortages in commodities such as vegetables, fruits, pulses, milk and eggs.

“Some of the economists strongly suggest that RBI should target only non-food inflation and not the food inflation. They recommended that a pure monetary approach to manage the inflation arising of supply side rigidities is a wrong approach and it is the duty of the government to make the effort to bring down the food inflation,” FICCI said.

One of the solutions for the price rise is seen as more corporatization, including foreign investment, in the agricultural-food supply chain.