Inflationary pressure has started building up on the Indian economy on a deficient monsoon, expansionary stance of the central bank and the rise in oil prices, says the Institute of Economic Growth (IEG).
And food prices are going to rise further.
"The grim monsoon situation and the expansionary fiscal policy have already led to a rise in inflationary expectations for the coming months. Besides, a further rise in the world oil prices would also be pushing prices up," says the research organisation in a report.
The wholesale price index (WPI)-based inflation has been negative for 10 consecutive weeks since early June, though mostly on high base effect rather than contraction in demand.
For July, inflation stood at (-)1.2 per cent and it is expected to be (-)1.3 per cent for August, (-)0.9 per cent for September and (-)0.4 per cent for October, IEG says.
The Reserve Bank of India expects the WPI-based inflation to rise by the end of the current fiscal to 5 per cent, higher than the projection of 4 per cent made by the central bank in the Annual Policy Statement of April 2009.
The IEG says the recent rise in inflation is largely due to upward movement of the administered price of fuels that became effective from July 2, the higher prices of food articles and some manufactured products.
Even during the current times when the headline inflation remains negative, it says, "the real purchasing power of the consumer was still being adversely affected by high CPI".