Inflation to touch 10% in Mar: Assocham

Inflation is likely to move into double-digits in March and touch 10 per cent due to supply constraints in food items coupled with lower base effect, industry body Assocham said.

However, inflation which surged to 8.56 per cent in January, the highest in over 13 months, is likely to come down to 5 per cent in September.

It, however, said the average inflation in 2010-11 would be 5.5 per cent.

"Inflation is currently rising due to lower base effect coupled with supply constraints in food items vis--vis significant lower rainfall faced during the last monsoon season," it said.

Lesser rainfalls have caused about 18 per cent shortfall in food grains production in the country.

Rising income levels of rural population due to increase in social sector spending has enhanced rural demand and increase in the salaries of government staff stimulated the demand in urban areas, it said.

Assocham further said lower base effect would be vanishing out by the end March 2010, Rabi crop sowing is providing efficient food production, liquidity in the economy was also under 'control' and more importantly appreciating rupee would encourage cheaper imports to curb inflation during the ensuing months.

The chamber expects the rupee to appreciate around 42-43 against the dollar by the end of 2010.

It expects capacity expansion to take place during the ensuing quarters which in turn will tackle supply constraints in the economy.