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The Reserve Bank of India has lowered its inflation projection for FY22 to 5.3 %

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New Delhi: The Reserve Bank of India lowered its inflation projection for FY22 from 5.7%to 5.3% on Friday. Inflation is being driven by edible oils, gasoline, LPG, and pharmaceutical prices, according to Governor Shaktikanta Das, who announced the monetary policy. Unseasonable rains and severe weather events, however, might put a damper on vegetable prices, according to Das.

CPI inflation is expected to be 5.1%in Q2, 4.5%in Q3, and 5.8%in Q4 of FY22, according to the central bank’s projections, with risks largely balanced. CPI inflation is expected to be 5.2%in the first quarter of fiscal 2023. CPI inflation in July-August came out to be lower than expected, according to Das. August’s CPI inflation rate was 5.3%, marking the second month in a row that the rate has slowed. However, core inflation, which excludes food and fuel, remained elevated and stable at 5.8% in July-August 2021.

“With the lowering of food prices, the CPI headline trend is slowing, which, when paired with favourable base effects, might lead to a significant softening in inflation in the near-term”, Das said.

Though Das noted that the recent rise of edible oil prices, as well as rising global crude oil prices, is the reason for concern.

“Pressures continue to be exerted by crude oil prices, which remain volatile due to global supply and demand concerns,” Das added. “Pump prices in the United States are still quite high. Input cost constraints are being exacerbated by rising metals and energy prices, severe scarcity of critical industrial components, and high transportation costs.”

The RBI Governor also mentioned that lower vegetable and grain costs, along with a significant drop in gold prices, had contributed to lower inflation.

According to the RBI, cereal prices are anticipated to stay mild in the future, while unseasonable rainfall and severe weather occurrences might cause vegetable prices to rise.

Governor Das stated, “Going forward, the inflation trend is projected to dip down during Q3:2021-22, drawing comfort from the recent catch-up in Kharif sowing and anticipated record output.” “These variables, along with a sufficient buffer supply of food grains, should assist to keep cereal prices within a narrow range. Vegetable prices, which are a significant source of inflation volatility, have been rather stable this year and are expected to do so in the next months, assuming no disruptions from unseasonal rains.”

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