After hovering above the Reserve Bank’s comfort level of 6% for much of this year, retail inflation is easing slowly and will ease further in the coming months amid global uncertainty. Efforts may continue. India’s fight against inflation will continue in the face of global uncertainty
High prices for crude oil, cooking oil, legumes, and vegetables were among the main reasons for the high inflation during the year. The trend came amid the conflict between Russia and Ukraine that began in February, disrupting global supply chains and pushing up prices for many commodities.
Since May, the Reserve Bank of India (RBI) has raised its short-term borrowing rate (repo) by 2.25 percentage points to reach a nearly three-year high of 6.25%.
The Consumer Price Index
The Consumer Price Index (CPI)-based retail price index rose above the RBI’s comfort level of 6% in January and then rose for nine months before falling to 5.88% in October. The RBI paper on “The Anatomy of Rising Inflation in India” states: Put pressure on the price and make it permanent.”
Recently, RBI Governor Shaktikanta Das weighed in on the inflation trajectory amid geopolitical tensions, global financial market volatility, the imminent shift of input costs to domestic production prices, and weather-related turmoil. said the uncertainty was significant.
“Core inflation (CPI excluding food and fuel) has been stable at around 6% for several months. So there is no room for complacency and the fight against inflation is not over yet. We need constant vigilance against it,” he said earlier this month. Inflation was a major challenge for regulators around the world, including in the US, UK, and Europe, during 2018 as commodity prices skyrocketed due to supply chain disruptions caused by the conflict between Russia and Ukraine.
The conflict comes at a time when the global economy is slowly recovering after being hit hard by the coronavirus pandemic.
For the first time since the Monetary Policy Committee (MPC) was established in 2016, the RBI has submitted a report to the government, saying it has failed to keep inflation within its target cap tolerance for three straight quarters since 6% in January. I explained why.
On the wholesale front, things didn’t turn for the better as inflation remained in the double digits until September, before plummeting to 5.85% in November.
The RBI forecasts overall average inflation of 6.7% for the current financial year. We expect retail inflation to ease to 5.9% in the March quarter from 6.6% in the December quarter.
Inflation is likely to ease over the next 12 months due to faster planting of winter crops, better water levels in reservoirs, and easing commodity prices, according to rating agency Icra.
“Our forecast annual inflation rate of 5.9% to 6.1% in December 2022 results in an average CPI inflation rate of roughly 6.2% in the third quarter of fiscal 2023, which is notably higher than the MPC’s projection for the period (+6.6%). 0%).
“Thereafter, we project average CPI inflation to dip to 5.8-5.9 percent in Q4 FY2023, before declining to 5.2 percent in Q1 FY2024,” Aditi Nayar, Chief Economist at Icra, said.
She also stated that the MPC’s decision on the repo rate in February 2023 will be heavily data-dependent, drawing cues from domestic inflation-growth dynamics, as well as the outlines of the Union Budget for FY24.