RBI lowers inflation forecast for FY22 to 5.3 percent
The Reserve Bank of India (RBI) on Friday forecast a substantial moderation in retail inflation in the near-term on softening food prices and a favorable base effect. Consumer Price Index (CPI) based inflation is now projected at 5.3 per cent for 2021-22 with risks evenly balanced. In its August policy, the central bank had projected inflation at 5.7 per cent due to supply-side constraints, higher crude oil and raw material costs.
Unveiling the bi-monthly monetary policy, RBI Governor Shaktikanta Das said, “The easing of CPI headline momentum with easing food prices, coupled with favorable base effects, could lead to a substantial moderation in inflation.”
On a quarterly basis, the CPI for Q2 is estimated at 5.1 percent: 4.5 percent in Q3 and 5.8 percent in Q4. CPI inflation for the first quarter of 2022-23 is estimated at 5.2 per cent.
He said headline inflation is being significantly impacted by very high inflation in select items like edible oil, petrol and diesel, LPG and medicines.
“Efforts to contain cost-push pressures through a calibrated reversal of indirect taxes on fuel could contribute to a more sustained moderation of inflation and strengthen inflation expectations,” Das said.
On the other hand, very low seasonal build-up in vegetable prices, fall in grain prices, sharp fall in gold prices and sluggish housing inflation have helped contain inflationary pressures.
Going forward, he said, several emerging factors provide comfort on the food price front.
“The momentum is expected to remain subdued in the near term. Cereal prices are expected to remain soft on the back of likely record kharif foodgrain production and adequate buffer stock. Vegetable prices, a major source of inflationary volatility, remain contained so far in the year. With record production and supply side measures by the government,” he said.
He said that unseasonal rains and adverse weather-related events, if any, in the coming months pose a risk to the prices of vegetables.
He said that the supply side measures by the government for edible oils and pulses are helping in easing the price pressures, however, the prices of edible oils have seen an uptrend in the recent period.
According to Das, the improvement in monsoon in September, expected higher output in kharif production, adequate buffer stock of food grains and less seasonal uptick in vegetable prices are likely to keep food prices under pressure.
Noting that core inflation remains stable, he said global crude oil and other commodity prices combined with sharp shortages of key industrial components and high logistics costs are adding to input cost pressures.
However, due to weak demand conditions, the pass-through for production prices has been put on hold, he added.
“We are monitoring the rising inflation situation and are committed to bring it closer to the target in a gradual and non-disruptive manner,” Das said.
.