Relief from rising prices remained short-lived as inflation, after declining for five months, inched up again to 6.95 per cent in February on costlier pulses and vegetables and may refrain RBI from cutting lending rates at monetary policy review tomorrow.
Finance Minister Pranab Mukherjee, however, took comfort from marginal decline in rate of price rise of manufactured goods and expressed hope that inflation may soften to 6.5 per cent by March.
"... Inflationary pressure is there... We will end the year with around 6.5 per cent (inflation)...," Mukherjee said.
Inflation, as measured by the Wholesale Price Index (WPI), was 6.55 per cent in January. In February last year, it was 9.54 per cent.
Inflation in food articles accelerated on an annual basis in February to 6.07 per cent. It was (-) 0.52 per cent in January, as per official data. Food articles have 14.3 per cent share in the WPI basket.
Besides, pulses turned expensive by 7.91 per cent and vegetables by 1.52 per cent. Prices of vegetables had declined 43.13 per cent in January.
Although the government was hopeful that inflation would decline to 6 per cent by March end, the latest figures show that it would continue to hover above the projected level and would necessitate fiscal steps to combat price rise.
Mukherjee may announce steps to contain price rise in the Budget 2012-13, to be presented in the Lok Sabha on March 16.
Experts said RBI will hold on to the policy rates in its mid-quarterly policy review meeting tomorrow as it has already injected Rs 48,000 crore liquidity last week by reducing Cash Reserve Ratio (CRR) for banks.
RBI, which had hiked policy rates several times up to October to tame inflation, has said the government needs to take fiscal steps, like reducing supply bottlenecks and subsidies, to tame price rise.
"With inflation still a problem and the growth side of the economy improving, we see little chance of an interest rate cut on Thursday," said Glenn Levine, Senior Economist, Moody's Analytics.
In February, egg, meat and fish prices rose 20 per cent, year-on-year. The rate or price rise was 18.63 per cent in January. Milk became expensive by 11.70 per cent, while rice and cereals turned costlier by 1.53 per cent and 1.71 per cent respectively.
However, prices of potato and onion declined by 2.22 per cent and 48.50 per cent year-on-year in February.
Prices of manufactured items, which have a weight of around 65 per cent in the WPI basket, went up by 5.75 per cent year-on-year in February, as against 6.49 per cent in the previous month.
"From October onwards, there were inflationary pressure on manufacturing sector, but there has been easing," Mukherjee said.
Inflation in the fuel and power segment was 12.83 per cent on an annual basis. The rate of price rise was 14.21 per cent in the previous month.
"We expect the RBI to leave the Repo Rate unchanged. The elevated price of crude oil stoking domestic inflationary pressures poses a significant concern," ICRA Economist Aditi Nayar said.
Crisil Chief Economist D K Joshi said, "The current inflation figure is due to the food prices only."
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