It also stated that the rising global commodity prices increase inflationary pressures at home led by the spiralling uprising in Middle East.
"The inflationary pressures on the domestic front are likely to be exacerbated by the higher levels of global commodity prices," said the Survey tabled by Finance Minister Pranab Mukherjee for 2010-11 in Parliament.
It also indicated that political turmoil in the Middle East and the easy money policy being followed by developed nations will have a bearing on headline inflation.
Headline inflation, which peaked at around 11 per cent in Apr, 2010, has been on the decline. It was 8.23 per cent in Jan.
The Survey attributed the decline in inflation to the structural and macro-economic steps taken by the government and the RBI to combat rising food prices.
"This year, inflation seems to be driven by demand factors, despite higher supply levels," the Survey said.
This is in contrast to the fact that in the last fiscal, inflation was mostly driven by a deficient monsoon, leading to scarcity of certain food products like pulses, cereals and sugar.
The Survey also pointed to the IMF projections of continued pressure on commodity and non-commodity prices. The Middle East turmoil has already taken global oil prices to a two-year high of over USD 100 per barrel.
Headline inflation has been over 8 per cent since Feb, 2010.
"The ten-year average of headline WPI inflation was around 5.3 per cent from 2000-01 to 2009-10... In the current financial year (2010-11), the average inflation (April-December) of 9.4 per cent was also much higher than the decadal rate," the Survey said.The government has already said that it expects inflation to moderate to around 5 per cent by Jun-Jul.
The RBI has also hiked its short-term lending and borrowing rates six times since Apr, 2010, to tame inflationary pressure by tightening monetary supply.