The Reserve Bank of India on Tuesday sharply raised inflation estimates for the current fiscal by 1.5 per cent to 6.5 per cent on account of burgeoning international commodity prices, particularly crude oil.
"On current assessment, assuming that there would be no (no) major supply shock and liquidity conditions remain manageable, the point-to-point year-end inflation based on wholesale price index (WPI) for 2004-05 could be placed around 6.5 per cent," RBI Governor Y V Reddy said in the mid-term review of the annual policy.
Inflation based on the consumer price index, which was 4.6 per cent in August 2004, could be affected by the WPI inflation with a lag, he said while addressing the chief executives of banks.
In retrospect, the magnitude and persistence of supply shocks was beyond what was anticipated by many. While there are uncertainties regarding the future course of international commodity prices, particularly oil prices, it is now clear that the year-end inflation projection would exceed what was anticipated at the beginning of the financial year (5 per cent), he said.
The annual inflation was relatively high in the case of four commodities, iron and steel, mineral oils and coal mining, which have a combined weight of 12.6 per cent in the WPI, it said adding, excluding these items, the WPI inflation rate works out to be 4.2 per cent as on October nine, 2004 on a point-to-point basis as against 3.8 per cent in the previous year.