RBI sees inflation remaining at elevated levels
Mumbai: Flagging concerns over quickening of inflation, the Reserve Bank on Monday said there is a need to anchor inflationary expectations without losing focus on growth.
"Both WPI and CPI inflation may stay range-bound around the current levels that remain above comfort levels," the Reserve Bank said in the second quarter macroeconomic and monetary development report released on the eve of the second quarter monetary policy.
The RBI said the trajectory of softening WPI inflation reversed in the second quarter mainly due to an increase in food and fuel inflation.
Vegetable prices increased sharply, impacting food inflation, while exchange rate depreciation and rise in crude oil prices led to a rebound in fuel inflation.
Headline inflation accelerated to a seven-month high of 6.46 percent in September on higher food prices, while consumer inflation touched 9.84 percent in the month.
"While food inflation pressures could recede somewhat on the back of a normal south-west monsoon, upside risks exist. These stem largely from second-round effects of high food and fuel inflation," the RBI said.
The report said the second-round effect, to an extent, is being reflected in the stubborn non-food and non-fuel component of CPI inflation.
The RBI report further said the risks to inflation also arise from high wage growth and rising costs of transport, education and health services.
"In this milieu, monetary and fiscal policies will have to be crafted so as to allow structural policy measures and ground-level actions to shape a sustainable recovery by next year," the report said.
"The monetary policy will need to aim at anchoring inflation expectations, while appropriately addressing growth risks," it said.
A survey of professional forecasters has revised their average WPI inflation expectation to 6 percent as against 5.3 percent they projected in the previous round of survey.