Inflation may peak at 13%

Inflation is likely to peak at around 13 percent over the next two months before gradually moderating to around 8.5 to nine percent by end of this fiscal year, economists said.

The country's economic growth too would moderate below the earlier-forecasted eight percent to around the 7.5-7.8 percent level in financial year 09, they said.

"I expect inflation to peak at around 12.5-13 percent in the next two months before beginning to decline. But double-digit inflation will continue at least for the next four to five months," Yes Bank's chief economist, Shubhada Rao, said.

Global fuel prices present the most concern to policy-makers, the economists said. "Inflation will be contingent upon oil prices," Crisil's director and principal economist, D K Joshi, said.

"Prices of products such as aviation turbine fuel and naphtha have shot up 40 percent year-on-year," Enam Securities' chief economist, Sachidanand Shukla, said.

While inflation would peak at around 12.5-13 percent, Joshi expected the yearly average inflation rate to be around the 8.5 to nine percent mark.

This figure, again, is much higher than the 5.5 percent projected by some economists earlier.

Rao, however, pegged the average at a much higher nine to 9.5 percent.

Economic growth would be below the eight percent mark, "maybe even below the 7.5 percent mark", Bank of Baroda's chief economist, Dr Rupa Rege Nitsure, said.

But other economists such as Joshi and Enam's Shukla felt that it would be in the 7.8 percent range.

"Growth will definitely slow down given the rate hikes, but I don't expect it to fall sharply. It will be around the 7.8 percent mark," Shukla said.

Yes Bank's Rao said that even pessimists were forecasting a seven percent growth. "Amidst the present global turbulence and domestic headwinds, seven percent is still very healthy," she said.

Food prices are expected to ease in the next few months. Much would, however, depend upon the monsoon, the economists said, but with a good one forecast, they expect a healthy Kharif crop, which would help in pushing down food prices.

On whether the Reserve Bank would further hike the Repo rate and Cash Reserve Ratio (CRR), most economists expect a 0.25-0.50 percent hike in the Repo but were divided over its timing.

A CRR hike would, however, depend upon prevailing liquidity conditions, they said. While some expected the RBI to hike rates in July, others felt that the RBI might do so later.

However, all are agreed that inflation would continue to occupy Centre-stage throughout this fiscal.