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%.

Dr Arun Singh, Senior Economist, Dun & Bradsheet India, said, "As domestic fuel prices witnessed its steepest hike, risks to inflation remain clearly on the upside, reinforced by the persistence of demand-side pressures as reflected in non-food manufacturing inflation. However, the likely slide in global commodity prices along with monetary policy tightening by the RBI is expected to contain the WPI inflation from Q3 FY12."

Primary Articles and Fuel Product: May 2011

Based on the weekly data available, the inflation for primary articles has further eased slightly to 11.3% in May 2011 from 12.0% in April 2011. The fall in the inflation for primary articles was mainly driven by sharp fall in inflation for non-food articles (from 27.3% to 22.4%) and food articles (from 8.7% to 8.4%), while the inflation for mineral rose to 11.9% from 7.4% in April 2011.

Within food articles group, the inflation for vegetables turned negative at -1.6%% in May 2011 from 2.3% in April 2011, but the inflation for fruits galloped to 31.9% from 28.9%. Among vegetables, inflation for tapioca (6.0%), brinjal (-17.1) and cabbage (-8.7%) eased, while among fruits inflation for banana (19.6%), apple (32.0%), orange (34.2%), papaya (46.7%) increased during May 2011. The inflation for cereals rose to 5.1%, while that for pulses further declined to -9.2% during May 2011. Inflation for fish marine and poultry chicken eased sharply to 4.0% and -0.5%, but inflation for milk increased to 6.4%. Among, the spices, inflation for turmeric declined to -20.1%, while that for chillies and black pepper increased to 36.4% and 78.6% during May 2011.

The inflation for non-food articles, in primary articles group, dipped from 27.3% in April 2011 to 22.4% in May 2011, driven by sharp fall in inflation for raw cotton to 68.4% in May 2011 from 101.2% in April 2011. However, the inflation for oilseeds, led by high inflation for groundnut, rape seed, copra and soyabean, increased to 12.2% from 10.0% in April 2011. Further, inflation for raw rubber and timber eased to 40.7% and 47.5%, but that for flowers increased to -7.7%.

The inflation for minerals group, under primary articles group, surged from 7.4% in April 2011 to 11.9% in May 2011. Within the minerals group, the inflation for crude petroleum spurted from 1.9% in April to 10.8% in May 2011. However, inflation for iron ore declined to 19.4%, but that for manganese ore increased to -37.7% in May 2011.

The inflation for fuel and power group eased from 13.3% in April 2011 to 12.3% in May 2011. Within the group, the inflation for coal declined to 13.3% in May 2011, while the inflation for electricity tumbled to -1.3% on high base. Among the mineral oils, the inflation for petrol surged to 27.3% during May 201, due to petrol price hike in mid-May 2011, from 21.8% in April 2011.

The contribution of primary articles to the overall inflation has dipped from 299 bps in April 2011 to 282 bps in May 2011. Meanwhile, the contribution of fuel product group has also tumbled from 203 bps in April 2011 to 189 bps in May 2011.

Inflation for March 2011 to be revised slightly upwards

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's Inflation Expectations Survey of Households: expect inflation to rise in Q1 FY2012

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.

Economists Projections for WPI Inflation for May 2011
Organization	Projection (%)
Anandrathi Financial Services	9.1
Axis Bank	8.6
Clearing Corporation of India	8.6
D&B India	8.3
DBS Bank	8.7
HDFC Securities	8.6
Indicus Analytics	8.7
Kotak Mahindra Bank	8.8
Royal Bank of Scotland	8.8
STCI Primary Dealer	9.1
Low	8.3
High	9.1
Average	8.7
Median	8.7
Mode	8.6