Inflation seen darting up 100 bps

The government’s decision of hiking fuel prices will impact prices of other commodities too thereby pushing up the overall rate of inflation.

Economists said the direct impact will be felt in the June inflation number to some extent while following months will see its indirect impact too.

“We expect a direct impact of 100 basis points on overall inflation,” said Abheek Barua, chief economist at HDFC Bank. “We expect overall inflation in June to be around 9.75%,” said Barua.

In the month of May the fuel group rose by 13.05% annually. This group has a weightage of 14.23% on the headline wholsale price index (WPI). LPG was up by 3.72%, petrol by 18.06% while high speed deisel oil was costlier by 15.81% compared with last year.

For May, the overall WPI stood at 10.16% annually.
“A direct impact of 50 basis points will be seen in June,” said Gaurav Kapur, senior economist, Royal Bank of Scotland. “I expect inflation in June to be above 10.5%,” said Kapur.

Fuel price hike may stoke inflation in short term only. “There is no need to worry about short term impact of inflation as in medium term it would lower the stress on fiscal exchequer and promote efficient use of fuel,” said Rupa Rege, economist, Bank of Baroda.

“Possibly August or September will be the peak month and then you will see a decline. But towards the year end overall inflation be a little higher than 5.5%,” said Barua.

WPI data for June will be released on July 14.

Meanwhile, famous investor Jim Rogers, chairman of Rogers Holdings, said the threat of inflation is extremely serious and the world is in an ongoing bear market for financial assets.

Rogers, who predicted the start of the global commodities rally in 1999, is betting on a decline in stocks and gains in commodities, he said on Friday in Mumbai,  Bloomberg reported.

He’s also bought the euro and the US dollar and said agricultural commodities are “extremely cheap” on an historical basis.