Economic Survey 2013: Easy money policy by rich nations could fuel inflation

"The positive effect of continuous policy easing by the major advanced and developing countries could pose a higher risk to inflation expectations and may be considered as an upside risk to inflation forecast," said the Survey tabled

in Parliament today by Finance Minister P Chidambaram.

"Inflation has eased in almost all major advanced and emerging market economies in the current year," it said.

As far as India is concerned, it said, the average wholesale prices-based inflation in 2012 (April-December) moderated to 7.55 per cent from 9.35 per cent in the corresponding period of the previous year.

Inflation further eased to three-year low of 6.62 per cent in January as compared to 7.23 per cent in the same month last year.

With moderation in non-food manufacturing sector and global commodity prices, the headline inflation may decline to 6.2-6.6 per cent in March 2013.

Prescribing ways to control the price rise, the Survey said: "Apart from monetary policy attempting to control demand, supply side responses will be necessary to bring down inflation in a sustained way, and ongoing policy initiatives need to be pursued."

Given that India faces a number of constraints on the supply side, in the short run, curbing demand for commodities moderately to catch up with supply may be an effective tool, the Survey said.