The Reserve Bank of India (RBI) on Friday projected Consumer Price Index (CPI) inflation or consumer inflation at 5.7 per cent during 2021-22, forecasting that it will be at 5.9 per cent in the second quarter, 5.3 per cent in the third quarter and 5.8 per cent in the fourth quarter of 2021-22, with risks broadly balanced.
It projected CPI inflation for the first quarter of 2022-23 at 5.1 per cent.
However, RBI Governor Shaktikanta Das during his speech at the conclusion of the Monetary Policy Committee (MPC), noted that headline CPI inflation rose sharply to 6.3 per cent in May 2021 driven by a broad-based pick-up across all major groups on adverse supply shocks, sector specific demand-supply mismatches and spillovers from rising global commodity prices.
Though it remained at 6.3 per cent in June, Mr Das said that core inflation registered an appreciable moderation.
He forecasted that inflation may remain close to the upper tolerance band up to the second quarter of 2021-22, but these pressures should ebb in the third quarter of the current fiscal mainly due to kharif harvest arrivals and as supply side measures take effect.
At the same time though, expressing optimism, the RBI Governor said that revival of the south-west monsoon and pick up in kharif sowing, buffered by adequate food stocks should help in containing cereal price pressures in the months ahead.
He noted that high frequency food price indicators show some moderation in prices of edible oils and pulses in July on the back of supply side interventions by the Government.
Referring to high pump prices of petrol and diesel with their second-round effects, he said that fuel rates along with logistics costs, continue to impinge adversely on cost conditions for manufacturing and services, although weak demand conditions are tempering the pass-through to output prices and core inflation.
“Since the start of the pandemic, the MPC has prioritised revival of growth to mitigate the impact of the pandemic. The available data point to exogenous and largely temporary supply shocks driving the inflation process, validating the MPC's decision to look through it.
The supply-side drivers could be transitory while demand-pull pressures remain inert, given the slack in the economy. A pre-emptive monetary policy response at this stage may kill the nascent and hesitant recovery that is trying to secure a foothold in extremely difficult conditions, Mr Das said.