CMIE projects inflation at 7% in FY 12

Moderation in food inflation and textile items would help ease wholesale price index-based inflation to seven per cent in FY 12, a leading economic think-tank said.

"We project that WPI-based inflation will ease to seven per cent in 2011-12, as compared to an estimated nine per cent in 2010-11," the Centre for Monitoring Indian Economy (CMIE) said in its latest review of the country's economy in Mumbai.

A moderation in inflation in food articles and textile items will be largely responsible for lower inflation in FY 12, it said.

High base values will keep inflation in food articles under control and inflation in this group is projected to average 6.7 per cent in FY 12.

"This will be less than half of the 16.6 per cent estimated for 2010-11 and 15.3 per cent recorded in 2009-10," CMIE said.

In FY 11, inflation in food items has been high largely because of higher demand. Various employment schemes have been launched like NREGS, which provides assured employment for 100 days to rural unskilled labourers.

Implementation of the sixth pay commission recommendations provided a hefty rise in the wages and salaries of Government employees.

Wages in the private sector have been rising too and the income of farmers is estimated to have risen by 5.1 per cent in real terms in 2010-11, CMIE said. In 2011-12, real income of farmers is projected to rise.

Regular wages and salaries of Government employees are budgeted to increase by seven per cent.

This increase will come over a robust 55 per cent increase in 2008-09, 30 per cent in 2009-10 and 18.7 per cent in 2010-11.

"Thus, the demand pressure will be largely responsible for keeping inflation at seven per cent in 2011-12," CMIE said.