Mumbai, June 10: Inflation — the bugbear of the Indian economy that has been bottled up since March — could raise its head once again.

Goldman Sachs expects inflation in India, which is now running at 0.48 per cent, to surge to 6.5 per cent by the end of March next year.

It reckons the Reserve Bank of India will be scrambling in early 2010 to start raising interest rates in an effort to check the price spiral.

The global investment banking and securities firm predicated the spurt in India’s inflation on the increase in the prices of crude oil and select commodities.

Goldman Sachs said in its report that inflationary pressures were building up and claimed that recent data on both the wholesale price index and the consumer price index showed a sequential bottoming out between February and April.

The report said domestic demand would pick up from October because of “the positive tailwinds from the election outcome and the easing of financial conditions”.

“A majority of the factors that impact inflation in India — the output gap, money supply, and commodity and asset prices — are suggesting a building up of inflationary pressures in the second half of 2009-10,” the report said.

However, in the very near term, year-on-year prices would possibly be in the negative territory because of a high base effect, it said.