Inflation is bound to cross a 13-year high of 9 per cent, from the current level of 8.1 per cent, as a result of the sharp hike in petrol and diesel prices, economists said.
"Inflation could cross 9 per cent in the near term owing to the hike in petrol and diesel prices," HDFC Bank chief economist Abheek Barua told PTI.
Besides, the base effect is also not favourable as the inflation is being calculated at the lower base, he said. The base effect relates to inflation in the corresponding period of the previous year.
On Wednesday, petrol price was hiked by Rs 5 per litre, diesel by Rs 3 a litre and cooking gas by Rs 50 a cylinder. Inflation was over 9 per cent nearly 13 years ago in September, 1995.
Petroleum Secretary M S Srinivasan said Wednesday's hike could lead to an about 0.5-0.6 per cent rise in inflation rate.
Petrol and diesel prices, which have gone up by 11 per cent and 8.5 per cent, respectively, will increase the inflation rate by about 0.3 per cent, while LPG cylinder would add 0.2-0.3 per cent to the rate.
Besides, there would be cascading effect of diesel price rise on commodities in due course of time by way of higher transportation cost, resulting in further pressure on inflationary expectations.
According to Crisil principal economist D K Joshi, headline inflation could definitely cross 9 per cent in the week to come when inflation data would capture the oil price hike.
Conforming to the view points of other analysts, Lehman Brothers India economist Sonal Varma said: "We expect inflation to cross 9 per cent in the coming weeks."
Referring to cascading effect of diesel price hike, Barua said in the next 3-4 months the second round of impact would be visible, which could increase the rate of inflation by another 0.3 per cent.
It would be in the form of rise in freight charges, leading to increase in prices of many commodities like automobile, FMCG, fruits and vegetables, iron and steel, he said.
Last week, Finance Minister P Chidambaram had said any increase in administered prices of petrol would have moderate inflationary impact in the short term, but its effect on prices in the long term could not be predicted as there would be a cut in expenditure under some heads as well.
Petrol has a weight of 0.88 per cent, while diesel has a weightage of over 2.0 per cent in the Wholesale Price Index, on the basis of which inflation is calculated.
Inflation figures are released with a lag of around two weeks. As such, the impact of petroleum price hike would be reflected in the official data to be announced on June 20.
More from rediff