Retail inflation based on the Consumer Price Index (CPI) softened to 6.71 per cent in July.
Mumbai:
An RBI article published on Thursday said inflation continues to be at higher levels, which gives an appropriate policy response to anchor expectations going forward.
Retail inflation based on the Consumer Price Index (CPI) moderated to 6.71 per cent in July, mainly due to moderation in food prices.
The Reserve Bank has increased the benchmark lending rate (repo) by 140 basis points in three quick successions to contain inflation, which has remained above its tolerance level for the sixth consecutive month.
“…perhaps the most pleasant development in recent times is the appreciable reduction in inflation by 30 basis points from June 2022 in July 2022 and 60 basis points from an average of 7.3 per cent for Q1: 2022-23.
“This validates our hypothesis that inflation peaked in April 2022,” said the article on ‘State of the Economy’.
For the rest of the year, RBI’s projections show a consistent slowdown in the pace of price changes, it said.
The article has been authored by a team led by Reserve Bank Deputy Governor Michael Debabrata Patra. RBI said that 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 largely in line with projections, we expect to decline from 3.0 percent in Q1 to 1.7 percent in Q2 and 1.3 percent in Q3 and to moderately and mildly negative in Q4 before taking on seasonality.” Food price impact Q1: 2.2 percent in 2023-24, according to the article.
If these expectations remain in place, inflation will fall to 7 to 5 percent in the first quarter of the next fiscal year — within the tolerance band, hovering close to the target, but not yet to descend, the authors said. he said.
If producers regain pricing power and wages, imported inflation pressure points are highly risky, followed by a pending pass-through of input costs.
Nevertheless, some risks have eased – commodity prices, especially of crude oil; supply chain pressure; And the disclosure of Monsoon activity due to the pressure created in the Bay of Bengal.
“Inflation has moderated, but its persistence at higher levels warrants an appropriate policy response to expectations going forward,” the article said.
It further said that the prospects for global growth have turned bleak in the month.
The easing of supply chain pressures and the recent fall in commodity prices are providing some respite from record high inflation. The supply situation in India is improving, with the recent pick-up in monsoon, strong momentum in manufacturing and pick-up in services.
The onset of the festive season should boost consumer demand, including rural, as sowing activity picks up. Strong central government capital outlays are supporting investment activity, it said.
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