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Inflation to ease by 2008-end, says FM adviser

Arvind Virmani says the outlook for inflation in India is uncertain in the June and September quarters, but there should be a clear downtrend in the December quarter.

business Updated: Jun 19, 2008 21:45 IST

The outlook for inflation in India is uncertain in the June and September quarters, but there should be a clear downtrend in the December quarter, the chief economic adviser of the finance ministry said on Thursday.

“There is a lot of uncertainty over the inflation rate in India over the next few months,” Arvind Virmani said in a speech on the economic outlook in Mumbai.

Data on Friday is expected to show annual inflation jumped to 13-year high of 9.82 per cent in early June, spurred by a rise in state-set fuel prices, a Reuters poll found, with some economists expecting a rate above 10 per cent.

The government raised pump prices of petrol and diesel by about 10 per cent earlier this month, joining other Asian countries no longer able to afford big subsidies in the face of soaring world oil prices.

High global food prices have also added to the inflation problem.

“All commodities besides oil by and large peaked some months ago. Hopefully, in the next quarter it will get clearer,” Virmani said, adding there were signs of a downtrend in food prices.

The Reserve Bank of India raised its key lending rate by 25 basis points to 8 per cent last week, the first rate rise in more than a year, to contain inflation expectations.

That and expectations of further tightenings has raised concerns growth may slow down significantly, after the economy expanded at 9 percent or more in the past three fiscal years.

But Virmani said growth was likely to average 9 per cent in the Eleventh Five-Year Plan, which covers 2007 to 2012.