IEG projects inflation rate to fall from May

New Delhi, May 7 (UNI) The Institute of Economic Growth (IEG) today projected inflationary trends to recede with the Wholesale Price Index (WPI) coming down below six per cent from May 2007 onwards and a contraction in demand folowing the tight money policy followed by the RBI, the main factor in the rising prices.

Using a forecasting model, the IEG pegs inflation rate at 6.1, 5.8 and 5.7 per cent during June, July and August respectively.

The premier research Institute says that while both demand and supply are both the causatory factors in the current prevailing high prices, the demand side factors have had a larger impact. This assessment is different from that of the government, which is a votary of the supply side economy, Finance Minister P Chidambaram has been stating that shortage of commodities like wheat, rice and pulses have resulted in high prices and thus put them on the OGL.

The Institute says that money supply growth which has been around 22 per cent in the recent past is a key factor in demand pull inflation.

The hawkish policy of the Central Bank will moderate demand factors and have a consequential impact on inflationary expectations.

Based on the data up to March 2007, the Institute forecasts that prime lending rates will be stable for some time.

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