Inflation for the week ended May 5 stood at 5.44 per cent as against 5.66 per cent, while. However, the market had estimated it at 5.24 per cent, re[ports CNBC-TV18, and was hoping that if inflation stayed on at the 5-per cent mark, a rate hike in July itself was unlikely; but now, that confidence is vanishing. Another couple of weeks of a jump in inflation, and one would find the RBI hiking rates.

On the face of it, inflation has fallen from 5.66 per cent last week, to 5.44 per cent; that is a YoY comparison because, one year back, in the month of April and May, inflation had risen very much, which is why, in comparison the YoY number looks lower.

But the week-on-week inflation index picture is a worrying one. Week-on-week, from end April to first week of May, the Index has gone up by five ticks, which is unusual. For the last two weeks - April 15 as well as April 24 - we have been holding at 210.9.

And now, the Index has gone up by five ticks to 214, which means that some prices have gone up. If you look at the three digit disaggregated numbers, the ones that have gone up are food articles, which went up little sharply and some parts of the fuel Index too went up, which is not good.

It was expected that the inflation Index would go up by only two ticks week after week. If compared with the big jump in the year ago period, the YoY inflation numbers will start looking like below 5 per cent by the time we come to June, mid-June and may stay at that level; even 4.5 per cent, which was being forecasted by some people looks a little tough now.

Now, what will this mean for policy? At the moment, the market was hoping that if inflation stayed on at the 5 per cent mark, a rate hike in July itself was unlikely; but now, that confidence is vanishing. Though a rate hike is not imminent, the confidence of that not happening, is vanishing. Another couple of weeks of this 5 or a 4-point jump in infllation could result in the RBI hiking rates.

A CRR hike is what the market is even more worried about because a huge FII inflow is being expected as a result of the DLF IPO as well as the ICICI public issue and maybe even the HDFC public issue.

All of these factors are working on the market and if the dollar flow via these issues come at a good speed, the RBI will have to come and protect the rupee or the dollar, which means that it will want to give itself elbowroom by hiking the CRR. All those fears, as well as inflation in fuel prices, increase the chance of a CRR hike. So, the market may act really jittery at the point.