RBI expects retail inflation to ease to 5% by March 2017

Tuesday, Feb 2, 2016,13:31 IST By Metrovaartha A A A

Mumbai | Normal monsoon and subdued oil prices are expected to bring down retail inflation to around 5 per cent by the end of next fiscal, RBI Governor Raghuram Rajan said today.

He also listed a number issues, including implementation of the Pay Commission’s recommendations for central government employees and movement in global commodity prices, which could build up inflationary pressures.

Going forward, under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5 per cent by the end of fiscal 2016-17, he said while unveiling the 6th bi-monthly monetary policy of the current fiscal.

He said however that the implementation of Seventh Central Pay Commission, which has not been factored into these projections, will impart upward momentum to this trajectory for a period of one to two years.

The Reserve Bank will adjust the forecast path as and when more clarity emerges on the timing of implementation. Vagaries in the spatial and temporal distribution of the monsoon and the impact of adverse geo-political events on commodity prices and financial markets add additional uncertainty to the baseline, he said.

Inflation has evolved closely along the trajectory set by the monetary policy stance, he said, adding that with unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6 per cent should be met.

Inflation, both at wholesale and retail levels, has been on a rising trend. In December, Wholesale Price Index-based inflation stood at (-)0.73 per cent, while retail inflation moved up to 5.61 per cent. Retail inflation as measured by the Consumer Price Index (CPI) rose for the 5th month in December across all constituent categories.

While the upturn in December essentially reflected unfavourable base effects, the ongoing seasonal decline in prices of fruits and vegetables could temper headline inflation in the near-term.

Prices of cereals recorded modest increases despite the adverse monsoon, indicative of effective supply management. On the other hand, pulses inflation continued to remain elevated, reflecting structural mismatches.

Latest News