The Associated Chambers of Commerce and Industry (ASSOCHAM) has projected Wholesale Price Inflation (WPI) going up at 15 per cent and Consumer Price Index (CPI) exceeding 18 per cent in next two months mainly due to hike in prices of petroleum products, rains disrupting supplies of food and primary articles and continued rise in consumption patterns. The WPI and CPI inflation is currently estimated at 12 and 14 per cent respectively.

In it’s assessment of rising inflation, the ASSOCHAM has emphasized that festival season would shortly approach and drive demand of almost every item of primary articles and essential commodities and substantially fuel inflation rates.

Releasing its assessment, ASSOCHAM Secretary General, Mr. D.S. Rawat said that projected rate of inflation would start moderating from October 2010 onwards because by then a good Kharif crop would have come to help supplies increase especially for rice and pulses and other grains.

Mr. Rawat pointed out that full impact of rise in prices of petroleum products such as petrol, diesel, compressed natural gas, LPG and kerosene would begin its reflection from next two-three weeks in the sense that cost of transportation and movements of goods would further go up and stroke inflation.

Considering a favorable monsoon season this year, jitters are already being felt in the supply chain management of food and other primary articles across the country. ASSOCHAM feels that once, the supply chain process gets disrupted, it leads to shortages of supplies and fuels inflation. Already a major part of on-going inflation rate has significant influence of shrinkages on supply side.

Crude prices are not showing any southward movement while commodities’ prices of metals like zinc, copper, aluminum go on soaring due to rising demand. All these factors would push up inflation even if state governments are able to manage movement of supplies. This is because mismatch between demand and supplies has been growing. Naturally, inflation will further inflate and start deflating as projected after October onwards when kharif crop yield has come into the market, argued Mr. Rawat.

The chamber has also pointed out that consumption patterns of some sections of society are not showing signs of stability because of availability of finance with them. Rising consumption patterns help supplies cause inequitable distribution of supplies.

Another significant factor which will prevent inflation to subside in next two months is due to the fact that festive season would have fallen by then in which even if pockets of masses are not that deep, demand grows and masses make purchases irrespective of prices going higher for essential commodities.

The Chamber, therefore, feels that the Reserve Bank of India (RBI) might resort to declare harsher monetary policies during its forthcoming review of Indian economy in 3rd week of July, which would mean that the apex bank can affect another 25 basis points hike in Repo Rate (RR), Reverse Repo Rate (RRR) and even Cash Reserve Ratio (CRR).

The ASSOCHAM even anticipates some increase in Statutory Liquidity Ratio (SLR) although it has been consistently demanding decrease in it by over 2 percentage points. These steps under prevailing economic situation are considered positives for containment of inflation but once, such a decision is announced, the interest rates on lending as well as on deposits will have to be proportionately increased since, banks have been holding back announcements on it for quite sometime.