The Reserve Bank on Wednesday marginally revised upwards its inflation projection for the current fiscal on firming crude oil prices in the global market.
Retail inflation, based on Consumer Price Index (CPI), rose sharply to 4.6 per cent in April driven mainly by a significant increase in prices excluding food and fuel, RBI said in a statement released after the three-day Monetary Policy Committee meeting. Since the MPC’s meeting in early April, the price of Indian basket of crude surged from USD 66 a barrel to USD 74 — about 12 per cent.
Along with increase in other global commodity prices and recent global financial market developments, this has resulted in a firming up of input cost pressures. Taking in account various factors, RBI revised the CPI inflation for 2018-19 to 4.8-4.9 per cent in first half of the fiscal and 4.7 per cent in the latter, including the HRA impact for central government employees, with risks tilted to the upside.
In the last policy, RBI had estimated inflation in the range of 4.7-5.1 per cent in H1; and 4.4 per cent in H2, including the HRA impact. The MPC resolution further said that excluding the impact of HRA revisions, CPI inflation is projected at 4.6 per cent in H1 and 4.7 per cent in H2. In April, RBI had projected the figures at 4.4-4.7 per cent and 4.4 per cent, respectively.
The RBI further said that impact of the revision in the MSP formula for kharif crops is not possible to assess at this stage in the absence of adequate details. Also, if the monsoon is normal and well-distributed temporally and spatially, it may help keep food inflation benign.
Crude oil prices have been volatile recently and this imparts considerable uncertainty to the inflation outlook – both on the upside and the downside, RBI noted.