Inflation will shoot up to 9.5 pc: Rangarajan

The steep hike in fuel prices the central government announced this month would push up the inflation rate to 9.5 per cent this week and could even touch double digits later, Prime Minister's Economic Advisory Council Chairman C. Rangarajan said in Bangalore on Thursday.

"The impact of the fuel price hike of June 5 will be seen in the inflation rate tomorrow (Friday), when the central government releases the weekly inflation rates," Rangarajan told IANS in an exclusive interaction after delivering the Sir Vittal N Chandavarkar memorial lecture on 'The Indian Economy: Challenges Ahead' at the Indian Institute of Science (IISc).

"The rate may touch double digit in the coming weeks," he said.

Elaborating on the impact, Rangarajan said that the inflation rate would reflect the 10 per cent hike in fuel prices on the Wholesale Price Index (WPI). The fuel price hike will get incorporated in WPI, he said.

"As a result of higher fuel prices, if prices of food articles, goods and services go up, the inflation rate will touch double digit in the coming weeks," Rangarajan said.

"The inflation rate will continue to remain high at 8 to 9 per cent till December (this year) because of base effect. If oil prices rise further, as feared in some quarters, economy is going to be in serious trouble," he said.

In the long-term, however, Rangarajan expected inflation to moderate and decline to around 7 percent by March 2009 even if oil prices remained high.

Agriculture has recorded a 4.5 per cent growth in 2007-08 and food procurement has been higher, particularly that of wheat at 32 million tonnes so far as against 11 million tonnes in 2007.

"If monsoon is good, as projected, it will dampen the inflation rate over the next five to six months," Rangarajan added.