Nearly a week after a data release by the NSO (National Statistical Office) showed that retail inflation has remained above the 7% mark for three consecutive months but inched down marginally to 7.01% in June from 7.04% in the previous month, the RBI bulletin has mentioned that the worst of inflation might be over.?
The pace of rise in prices in India is on the back foot and the ¡°worst of inflation may be behind us¡±, the Reserve Bank of India (RBI) staff wrote in the July 2022 edition of the central bank¡¯s Bulletin.
¡°For the second month in a row in June, headline CPI inflation eased in India, according to the July 12, 2022 data release of the NSO, on the back of receding food inflation. Very grudgingly, as we foretold, but diverging from the global central tendency¡ Several global developments are pointing in that direction,¡± RBI staff wrote in the State of the Economy article of the July Bulletin.
The June data marked the sixth consecutive month that CPI inflation was above the upper bound of the RBI¡¯s target range of 2%-6%, as per a Business Standard report.
Retail inflation has remained above 6% since January 2022. The RBI¡¯s Monetary Policy Committee (MPC) has raised the benchmark policy repo rate by a total of 90 basis points to 4.90 per cent since May 2022, including a 40bps surprise rate hike in May 2022 and then another 50bps hike last month in June 2022. Amidst this, banks have begun hiking both loan and bank FD rates.
According to the article in the RBI¡¯s July Bulletin, suppliers¡¯ delivery time turned positive for the first time since February 2021, reflecting an easing of supply chain constraints for India.
¡°Most importantly, monetary policy has gone on to the front foot against inflation and as Governor Shri Shaktikanta Das pointed out: ¡..our current assessment is that inflation may ease gradually in the second half of 2022-23, precluding the chances of a hard landing in India¡±.
In its June policy statement, the MPC forecast CPI inflation at 6.2% in October-December and 5.8 % in January-March. For the current financial year, CPI inflation is projected at 6.7%.
¡°Prices of goods, which were caught up in supply chain tangles are approaching a tipping point,¡± the article mentioned.
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Since the Ukraine war broke out in late February, the RBI has heavily sold dollars in the foreign exchange market to shield the rupee from runaway depreciation amid large outflows of overseas investment. The latest data showed that the reserves were at $580.3 billion as of July 8.
According to the July Bulletin article, the current level of reserves was equivalent to 9.5 months of imports projected for 2022-23.
The bulletin also stated that among the global developments which point towards easing inflationary pressures are the aggressive monetary policy tightening plans announced by central banks across the globe, softening commodity prices and reduction in supply chain constraints.
It pointed out that retailers with built-up inventories were reducing prices to shift stock and both input and output in the global manufacturing purchasing managers¡¯ index had eased in June.
Such positive developments could appear in India too, the RBI staff wrote, adding that the formation of a trend in falling international commodity prices could encourage food companies to start cutting prices.
From a 14-year high of $140 per barrel in March 2022, prices of Brent crude have cooled off significantly, with the most active futures contract currently hovering near the $100-per-barrel mark.
Global crude oil prices had surged following Russia¡¯s invasion of Ukraine in February. The development posed substantial upside risks to India¡¯s inflation and current account deficit, given that the country imports more than 8% of its fuel needs.
So,?overall, can all this be a signal of much-needed relief from the money eater (inflation)? It remains to be seen in the upcoming months.
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