Inflation at high levels justifies policy responses to anchor targets: RBI


Mumbai: Inflation is consistently at high levels which warrant appropriate policy responses to anchor expectations for the future, an RBI article published on Thursday said. Retail price inflation based on the consumer price index (CPI) eased to 6.71% in July, mainly due to moderating food prices.

The Reserve Bank raised the benchmark lending (repo) rate in three quick successions by 140 basis points to rein in inflation, which remains above its tolerance level for the sixth consecutive month. “…perhaps the most encouraging development of late has been the decline in inflation in July 2022 of 30 basis points from June 2022 and a sizeable 60 basis points from the average of 7.3% for the first quarter of 2022-23.”This validated our hypothesis that inflation peaked in April 2022,” says the “State of the Economy” article. of the year, RBI projections point to a steady slowdown in the dynamics of price changes, he said.The article was written by a team led by the Deputy Governor of the Reserve Bank, Michael Debabrata Patra RBI said the opinions 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 earnings broadly in line with projections, we expect momentum to increase from 3.0% in the first quarter to 1.7% in the second quarter, then to 1.3% in the third quarter and become slightly negative in the fourth quarter before picking up slightly and seasonally. The effects of food prices to 2.2% in the first quarter: 2023-2024 “, according to the article. If these expectations hold, inflation will fall from 7 to 5% in the first quarter of next fiscal year – within tolerance, closing in on target, but not yet positioned to land, the authors said.Imported inflation pressure points remain the overriding risk, followed by the looming pass-through of input costs if producers regain price and wage-setting power.Yet some risks have receded – commodity prices, particularly crude; supply chain pressures; onment; and the acceleration of monsoon activity due to the depression in the Bay of Bengal. “Inflation has eased slightly, but its persistence at elevated levels warrants appropriate policy responses to anchor expectations for the future,” the article said.

He added that the outlook for global growth darkened during the month. Easing supply chain pressures and the recent decline in commodity prices offer respite from record inflation. In India, supply conditions are improving, with the recent resumption of the monsoon, strong momentum in the manufacturing industry and a rebound in services. The start of the festival season is expected to boost consumer demand, including rural ones, also with the resumption of sowing activity. Robust central government capital spending is supporting investment activity, he said.

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