Inflation is expected to decline to 6.5 per cent by the end of this fiscal on prospects of good monsoon, the Prime Minister's Economic Advisory Committee (PMEAC) said on Friday.The panel's estimates are higher than the projection by RBI and what Prime Minister Manmohan Singh had said in May."Food prices have already begun to soften. Combined with the base effect, we expect inflation to fall to around 6.5 per cent by March 2011," the PMEAC said in its economic outlook report 2010-11.Prime Minister Manmohan Singh had said in May that inflation was likely to come down to 5-6 per cent. RBI had projected the rate of price rise at 5.5 per cent by the end of current fiscal.Rangarajan said the PMEAC's estimates of 6.5 per cent by March end take into account the fuel price hike.It said with projected normal monsoon, inflationary expectations would be moderated. "The available food stock must be released in a manner that they have a dampening effect on prices," it said.The overall inflation remained in double digit for the fifth consecutive month recording 10.55 per cent in June.The report said that the current monetary policy should have a bias towards tightening which would be required for a sustainable growth in the medium term.With the monsoon expected to be normal, the supply position will ease and price expectations normalised in the course of this year, the report said."Overall WPI headline inflation is expected to remain high (7-8 per cent) at the end of December 2010, dropping to around 6.5 per cent by March 2011."We expect both primary food and manufactured food prices to show declining inflation and reach a level of 5-7 per cent in the third quarter of the current fiscal," the report said.The council added that the eventual decontrol of petrol prices would result in higher inflation as the price alignment was long overdue. "... the process of clearing the backlog in price adjustments has at last commenced. This will contribute to a larger rise in the headline rate than if price adjustments had been carried out in time."The government last month raised petrol and diesel prices by Rs 3.5 a litre and Rs 2 a litre. It hiked cooking gas rates by Rs 35 a cylinder and kerosene prices by Rs 3 a litre.On food inflation, which is currently at 12.47 per cent, the report said, "Even though there is an improvement in the situation in respect of food prices, especially foodgrains and sugar, food price inflation remains at unacceptably high levels." Food inflation had peaked at 20 per cent in December last year.
First Published: Jul 23, 2010 18:18 IST