Lower-income groups were hit the hardest as the public distribution system has collapsed.
Economists feel the infla tion rate will rise further as fuel price hikes have an indirect impact on other prices. Sustained inflation could affect growth, they warn.
The government’s options are limited as the price rise is from the supply side. There could be rate hikes by the RBI.
Hopes are pinned on a good monsoon, which will ease the foodgrain situation, and a drop in world commodity prices.
Many feel the government and the RBI did not act in time. A Goldman Sachs report said: “We reiterate that the RBI has been behind the curve for not having increased the benchmark repo rate in April. Experts blamed the government and the RBI for failing to act early to curb inflation which touched 11.05 per cent.
Analysts said the government delayed in tackling the impact of world oil prices, that soared 40 per cent since January. “It acted in June and and burnt a hole in the pockets of the common man,” said one.
The consensus is that inflation will rise further in coming weeks. “Headline inflation could touch 13 per cent by end-September, before easing off,” said Kotak Securities economist Mridul Sagar. “Rates could fall in the last quarter on the back of a good monsoon.” “There is a further upside left in inflation,” said Crisil’s chief economist D.K. Joshi. He expects double-digit inflation to stay.
“While a correction in global prices and a good monsoon could bring relief, we don’t expect inflation to fall below 8 per cent until December,” said Reliance Capital chief economist Atsi Sheth.