RBI cuts FY22 inflation forecast to 5.3%

The Reserve Bank of India on Friday cut the FY22 inflation forecast to 5.3% from its earlier estimate of 5.7%. Edible oils, fuel, LPG, and medicine prices are driving inflation rate, Governor Shaktikanta Das said while announcing the monetary policy. Though Das cautioned that unseasonable rains and adverse weather events could pose risks to vegetable prices.

As per the central bank’s estimates, CPI inflation is seen at 5.1% in Q2, 4.5% in Q3 and 5.8% in Q4 of FY22 with risks broadly balanced. CPI inflation for forst quarter of fiscal 2023 is projected at 5.2%. Das added that CPI inflation during July-August had turned out to be lower than anticipated. CPI inflation print in August came in at 5.3%, the second consecutive month of moderation. Though, core inflation, i.e. inflation excluding food and fuel, remained elevated and sticky at 5.8% in July-August 2021.

“The CPI headline momentum is moderating with the easing of food prices which, combined with favourable base effects, could bring about a substantial softening in inflation in the near-term,” Das said.

Though Das cautioned that the resurgence of edible oils prices and high global crude oil prices in the recent period, is a cause of concern.

“Pressures persist from crude oil prices which remain volatile over uncertainties on the global supply and demand conditions,” Das said. “Domestic pump prices remain at very high levels. Rising metals and energy prices, acute shortage of key industrial components and high logistics costs are adding to input cost pressures.”

The RBI Governor also noted that the decline in vegetable and cereal prices with sharp deceleration in gold prices, had helped softening of inflation. Going forward as per RBIs estimates, cereal prices are expected to remain soft though unseasonable rains and adverse weather events pose upside risks to vegetable prices.

“Going forward, the inflation trajectory is set to edge down during Q3:2021-22, drawing comfort from the recent catch-up in kharif sowing and likely record production,” Governor Das said. “Along with adequate buffer stock of food grains, these factors should help to keep cereal prices range bound. Vegetable prices, a major source of inflation volatility, have remained contained in the year so far and are likely to remain soft, assuming no disruption due to unseasonal rains.”

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