Inflation to remain sticky in 2012-13: RBI

The last fiscal was marked by strong inflationary pressures that began easing only in December.

“Going forward…the near-term inflation trajectory is subject to significant upside risks,in particular from high oil prices and unsustainable levels of suppressed inflation,the lagged pass-through impact of rupee depreciation,higher freight rates and taxes,sustained wage pressures,and the structural nature of protein-food inflation,” RBI added.

The Wholesale Price Index (WPI) based inflation has moderated to 6.89 per cent in March 2012.

While there was a slight decline in overall inflation in March,food prices have increased marginally.

Terming the rising prices of food items as ‘disturbing’,Finance Minister Pranab Mukherjee said the government will take steps to clear the supply-side bottlenecks to ease the price situation.

Pointing out that the government would have been more comfortable with an inflation closer to 6.5 per cent,he said,”we shall have to be alert on it…Ofcourse the supply side constraint substantially effect food inflation. We will be addressing that”.

The RBI further said that “major concern on the inflation front continues to be high fuel prices driven by the increase in international oil prices,” the report added.

As per the RBI’s “current assessment”,Indian basket crude oil prices during the year could average around the current levels of about USD 120 per barrel but both upside and downside risks to this projection remain large.

India imports about 80 per cent of its crude oil requirements.

The RBI further said the increase in railway freights and hike in excise duty to 12 per cent from 10 per cent will increase cost pressures. This could fuel prices of non-food manufactured products,thereby increasing inflation in the short-term.

The central bank said demand moderation,reflected in the dampening of the pricing power of producers,has also played a role in moderating inflation in the recent months.