RBI pegs CPI at 5.3% for fiscal FY22, expects inflation trajectory to edge down during Q3

The Reserve Bank of India (RBI) today said that the inflation trajectory is set to edge down during the third quarter of FY22. RBI targets inflation performance for policy outcomes, had announced the country’s fourth bi-monthly monetary policy for the current fiscal today.

CPI Inflation for August 2021 is the latest data for this fiscal. The inflation cooled to 5.30% in August and was almost 70-80 bps lower than consensus estimates. In July 2021, the CPI was at 5.59%.

RBI today said that “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.”

It added that along with adequate buffer stock of foodgrains, 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. Supply-side interventions by the Government in the case of pulses and edible oils are helping to bridge the demand-supply gap; the situation is expected to improve with Kharif harvest arrivals. The resurgence of edible oils prices in the recent period, however, is a cause of concern.

On the other hand, the central bank also said that “pressures persist from crude oil prices which remain volatile over uncertainties on the global supply and demand conditions. 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. Weak demand conditions, however, are tempering the pass-through to output prices.”

“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,” RBI added.

Taking into consideration the above, RBI said that CPI inflation is projected at 5.3 per cent for 2021-22; 5.1 per cent in Q2, 4.5 per cent in Q3; 5.8 per cent in Q4 of 2021-22, with risks broadly balanced. CPI inflation for Q1:2022-23 is projected at 5.2 per cent.

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( With inputs from indiainfoline)