The WPI inflation for March 2011 at 9.10% was sharply above RBI's projection of 8%, while the inflation for April 2011 eased only slightly to 8.7%. However, the inflation for May 2011 is expected to remain steady at 8.7% largely owing to moderation in inflation for primary articles and fuel products. Capital Market has conducted the poll amongst economists for their projections of inflation figure for May 2011. As per the results of poll, the rate of inflation for May 2011 is expected to remain flat at 8.7%. About 10 economists polled have forecasted the inflation in the range of 8.3% to 9.1%. The median of the economists forecast's for inflation for May 2011 stood at 8.7%.

The Ministry of Commerce has been revising provisional inflation figures sharply upwards for past many months. However, the inflation for March 2011, with new 2004-05 base, is also likely to be revised slightly upwards above 9.15% compared to 9.10% reported earlier. As per the weekly revised data available, the inflation for fuel products was revised downward to 12.5% for March 2011, while that for primary article was revised upwards to 13.5% from provisional figures of 12.9% and 13.0%.

RBI has conducted the 23^rd round of Inflation Expectations Survey of Households in the January–March 2011 quarter. The survey captures the inflation expectations of 4000 urban households across 12 cities for the next quarter (April-June 2011) and for the next year (April 2011-March 2012). As per the results of survey, households expect inflation to rise further by 40 and 120 basis points during next quarter (11.9%) and next year (12.7%), respectively, from the perceived current rate of 11.5%. Households' expectations of general price rise were mainly influenced by movements in food prices. The percentage of respondents expecting price rise have gone down for all product groups (namely, general prices, food products, non-food, household durables, housing and services). Daily-wage workers and housewives expected higher inflation rates compared to other categories. Across cities, Bangalore registered the highest inflation expectations and Patna the lowest.

Inflation remains sticky around 9.0% even before the hike in diesel, domestic LPG and Kerosene is effected. At the same time, the adverse effect of sharp rise in interest rates have started eating into the pace of growth of the economy in general, and its manufacturing sector in particular. The IIP growth (Base Year 2004-05) has come down from 8.9% in March 2011 to 6.3% in April 2011, which is the slowest pace of growth in seven months, with previous low at 6.1% in September 2010. Global scenario is none too conducive, with Greece debt problem, China's efforts to cool down its economy, high unemployment rates in advanced markets and as Japan is yet to come down to norm terms after devastating earthquake followed by Tsunami in March 2011. Above all, whether Quantitative Easing (QE) 2 will be extended or will come in a new avatar remains to be seen. In this background, here is a dilemma for RBI as to whether to remain aggressive to tame inflation, or skip one hike to allow growth rates to normalize.