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The Reserve Bank of India has forecast that inflation is expected to be above seven per cent – much above the RBI’s comfort level — in the first two quarters of the current fiscal.
The RBI’s medium-term target for consumer price index (CPI) inflation is 4 per cent within a band of plus or minus two per cent.
Unveiling the bi-monthly policy review, the Monetary Policy Committee of the RBI has projected an inflation of 7.5 per cent in the June quarter and 7.4 per cent in the September quarter. The RBI expects inflation at 6.2 per cent in the December quarter and 5.8 per cent in March 2023.
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Between February and April, headline inflation has increased by about 170 basis points. “With no resolution of the war in sight and the upside risks to inflation, prudent monetary policy measures would ensure that the second-round effects of supply side shocks on the economy are contained and long-term inflation expectations remain firmly anchored and inflation gradually aligns close to the target,” the RBI said.
The monetary policy actions including withdrawal of accommodation will be calibrated keeping in mind the requirements of the ongoing economic recovery, it said/
Headline retail inflation rose further from 7.0 per cent in March 2022 to 7.8 per cent in April 2022, reflecting broad-based increase in all its major constituents. Food inflation pressures accentuated, led by cereals, milk, fruits, vegetables, spices and prepared meals. Fuel inflation was driven up by a rise in LPG and kerosene prices. Core inflation (CPI excluding food and fuel) hardened across almost all components, dominated by the transport and communication sub-group.
“Our effort will be to move closer to the target of 4 per cent (plus minus 2 per cent). We believe that our actions will have their impact in bringing down inflation and inflation expectations and we are committed to bringing it down,” RBI Governor Shaktikanta Das said.
The MPC said certain positive developments on the price front in recent weeks may help to ease the acute price pressures to some extent. “These would include expectations of a normal south-west monsoon and kharif agricultural season; the recent supply side measures taken by the government and the unfolding of their impact; lifting of the palm oil export ban by Indonesia; and signs of moderation in global industrial metal price indices,” it said.
“Our quick survey of urban households undertaken after the excise duty cuts on petrol and diesel on May 21, 2022 shows a significant moderation in their inflation expectations: declines of 190 basis points in their three months ahead expectations and 90 basis points in one year ahead expectations,” the RBI said. In such a scenario, further reduction of State VATs on petrol and diesel across the country can certainly contribute to softening of the inflationary pressures as well as expectations, it said.
