Bombay:
Inflation is consistently high, justifying appropriate policy responses to anchor future expectations, according to an RBI article published Thursday.
Retail inflation based on the consumer price index (CPI) fell to 6.71 percent in July, mainly due to the moderation in food prices.
The Reserve Bank has raised the borrowing rate (repo) by 140 basis points in three rapid successions to contain inflation, which remains above its tolerance level for the sixth month in a row.
“…perhaps the most encouraging development in recent times is the decline in inflation in July 2022 by 30 basis points from June 2022 and a significant 60 basis points from the 7.3 percent average for Q1:2022-23.
This confirmed our hypothesis that inflation peaked in April 2022, according to the article on the ‘state of the economy’.
For the remainder of the year, the RBI’s forecasts smell of a steady easing of the momentum of price changes, it said.
The article was written by a team led by Reserve Bank Vice Governor Michael Debabrata Patra. The RBI said the views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India.
“With the trajectory of results broadly in line with projections, we expect momentum to decline from 3.0 percent in the first quarter to 1.7 percent in the second quarter and further to 1.3 percent in the third quarter. and will turn slightly negative in the fourth quarter before growing modestly and seasonally.” food price effects up to 2.2 percent in Q1: 2023-24,” the article said.
If these expectations hold, inflation will fall from 7 to 5 percent in the first quarter of next fiscal year — within the tolerance band, closer to target, but not yet positioned for landing, the authors said.
Imported inflationary pressures remain the overarching risk, followed by pending input cost pass-through if producers regain price power and wages.
Still, some risks have eased – commodity prices, especially crude oil; pressure in the supply chain; and an uptick in monsoon activity due to the Bay of Bengal depression.
“Inflation has fallen, but maintaining it at high levels warrants appropriate policy responses to anchor expectations for the future,” the article said.
It went on to say that the global growth outlook has turned more bleak over the course of the month.
Easing supply chain pressures and the recent decline in commodity prices offer some relief after record high inflation. In India, supply conditions are improving with the recent monsoon pick-up, strong momentum in the manufacturing sector and a rebound in the services sector.
The start of the festival season should stimulate consumer demand, including in rural areas, even if sowing activity increases. Robust central government capital spending supports investment activity, it said.
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)