RBI may raise inflation target

The rate of Wholesale Price Index (WPI) -based inflation, which rose to a six-month high of 6.1 per cent in August, might force the Reserve Bank of India (RBI) to scale up its March-end inflation forecast of five per cent.

Even as the central bank readies to announce the mid-quarter review of its monetary policy — the first under Governor Raghuram Rajan — on Friday, a high rate of inflation is seen limiting its options. The August headline inflation rate rose mainly due to a rise in food prices, and despite core inflation continuing to ease in the month, reflecting the manufacturing sector’s diminishing pricing power. Though a normal monsoon might ease food prices going ahead, the rupee’s sharp depreciation against the dollar in recent times would pressure on the prices, while the full pass-through of the oil price rise has not yet been realised.

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