Mumbai: Finance Minister P Chidambaram said on Friday that one rise in domestic fuel prices did not decide the inflation rate and the incoming monsoon would have a restraining effect on prices.
Government is debating whether to raise retail fuel prices for the first time since September and an petroleum ministry official has said a decision is likely by Monday.
"One price rise doesn't decide inflation. It's a number of price movements and it's not right to conclude that any one price rise or decline will decide inflation," said Chidambaram.
Bond investors have already priced in a modest rise in fuel prices but if the increase is more than an expected six to seven per cent, bonds could fall to fresh four-year lows.
An unexpectedly sharp increase in fuel prices may push up inflation by nearly a percentage point and could see interest rates rise.
The wholesale price index showed an annual rise of 4.32 per cent on May 13, the latest date for which data is available, and was partly fuelled by higher energy costs.
A Reuters poll forecast the inflation rate at 4.06 per cent.
The monsoon rains hit Kerala coast six days ahead of schedule on Friday.
Timely monsoons help bring down prices of primary articles like food.
"Once monsoon sets in experience is that it has a price restraining effect," Chidambaram said when asked about the latest rise in the inflation rate, which was higher than expected.
"Many prices will decline and inflation is under control. It's our intention to keep it under control," he added.
The central bank forecasts inflation to end the current fiscal year to March 31 between 5.0-5.5 per cent.
Analysts say a widely expected fuel price hike would bolster inflationary pressures.
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