The Institute of Economic Growth (IEG) fears that crude oil prices may soar to $40 per barrel in the event of a US military strike on Iraq. Increase of crude prices in the international market will lead to the inevitable firming of inflation rate which had remained subdued for quite some time.According to IEG, the Wholesale Price Index (WPI) may increase to 4 per cent in the next three months with the firming of crude prices. The IEG report said the much talked-about impact of drought has not been felt on the prices till now. ‘The increase in the oil prices and rise in demand for manufactured goods have put upward pressure on domestic prices’, it added.It further says, ‘The expected decline in money supply may restrain the inflation at its current levels. But if there is any rise in the world oil prices following the US-Iraq tensions, then our forecast would be little higher’.The WPI inflation rate increased to 3.7 per cent in the first week of January 2003 as compared to 3.2 per cent in the month before. Referring to industrial production, IEG said Index of Industrial Production (IIP) may go up to 5.6 to 5.7 per cent in the next three months. The decline of IIP in November 2002 to 3.7 per cent, it said, was on account of poor performance of sectors like mining, manufacturing, electricity, basic, capital and intermediate goods.Subdued inflation rates and existing demand constraints, it said, must have added to IIP deceleration in November. It has also forecast deceleration in growth rate of money supply to 15.1 per cent in the next three months. There is also a possibility of further softening of prime lending rate in the short run.
