Joel Rebello

Mumbai: Economists are predicting a minimum 35 basis points rise in inflation for the week ended June 7, due to the impact of the hike in domestic fuel prices.

That would mean inflation is at a minimum 9.2%, given that it was 8.75% in the week ended May 31 —- the figure that was announced on June 13.

But many in the street are betting on a far higher number ---tipping the 10% mark.

Out of 18 economists polled by Bloomberg, 6 expect inflation to top 10% on Friday.

A Prasanna, economist at ICICI Securities, says besides the domestic fuel price hike, higher prices of industry-specific fuels such as those for aviation have also been factored into the predictions.

“There has been a substantial increase in aviation turbine fuel prices month after month from May 1 to June 1 and because crude forms a part of the input for most products, ultimately higher crude prices will impact all commodities,” Prasanna said.

The Union government had hiked domestic prices of petrol (by Rs 5) and diesel (by Rs 3) on June 4. It had also hiked the price of cooking gas by Rs 50.

However, some state governments had chosen to compensate consumers by cutting sales tax on fuel and also absorbing either a part or the full quantum of the hike in the LPG prices. Analysts say the divergence in inflation predictions this week is because different state governments have come out with different levels of concessions after the central government hike.

“What will be the aggregate hike in fuel prices across India is difficult to predict, so some have taken into account the total pass through while some like us have taken only half of the pass through while some only parts,” said an economist with a large private bank in India, whose bank has only taken into account half of the total LPG price hike.

Namrata Padhye, fixed-income research analyst with IDBI Gilts, said she expects inflation numbers to be 9.68% next week. That prediction is roughly the median estimate of the street.

IDBI Gilts has taken into account the hike in domestic petrol and diesel prices but has not factored in the hike in LPG prices, she said.

Source : DNA