Headline inflation accelerated to 9.44 per cent in June, on back of high prices

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of fuel, primary articles and manufactured products groups despite a moderate slowdown in food prices.

In May, inflation was at 9.06 per cent and in April, it was revised up by over 100 basis points, raising concerns. April's provisional inflation number of 8.66 per cent was revised on Thursday to 9.74 per cent. This is third consecutive month when inflation numbers were revised upwards by more than 100 basis points.

Finance minister Pranab Mukherjee said the government was monitoring the situation closely. "The government is working with RBI to take appropriate steps to reduce inflation to a comfortable level," Mukherjee said reacting to the high wholesale price inflation, reported for June.

He also said the high WPI inflation was partly due to increase in administered fuel prices, seasonal effects, an upward movement in mineral and manufactured prices and in part reflecting imported inflation. Imported inflation is attributed partly on account of large capital inflows and partly due to high global commodity prices.

Fuel and power segment in the monthly inflation index stood at 12.85 per cent year-on-year in June, up from 12.32 per cent last month.

The government had hiked diesel, kerosene and LPG prices in May and most economists believe the full impact of the hike will be felt only by July.

Manufactured product inflation was slightly up at 7.43 per cent in June 2011 compared with 7.27 per cent the previous month, and 5.62 per cent in June last year. The rise was led primarily due to high input cost of raw materials like metals, cotton, food products, edible oil and textiles.

Deloite Haskins and Sells director Anis Chakravarty said, “Inflation since January has consistently remained over nine per cent despite persistent rate hikes by RBI. There is a fear that inflation may become systemic."

Religare Capital Markets chief economist and director Jay Shanker said, "Acceleration in headline index is mainly due to recent fuel price hike and high input prices of commodities for the manufacturing sector." The June figure of 9.44 per cent may scale over 10 per cent post-revision and is expected to peak at 10 to 10.5 per cent by August and September, he added.

Forecast of a normal monsoon this year, however, appeared to moderate inflationary pressures. “If monsoon distribution remains satisfactory, it should augur well for easing inflation and improving the demand scenario,” said YES bank vice-president and chief economist Shubhada Rao.