Inflation persistence vis-a-vis low growth, RBI has limited choice: SBI report
Jun 16, 2021
Mumbai (Maharashtra) [India], June 16 : Driven by several global and domestic factors, inflation may remain elevated in the coming months, State Bank of India's research division said on Wednesday.
Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, said that faster-than-anticipated and robust recovery in some advanced countries is likely to exert upward pressure on international commodity prices, including crude oil.
Being an intermediate good in leading emerging market economies, this will generate cost-push inflation, he said in a report.
Moreover, the ravages after the second wave of Covid-19 pandemic and location-specific lockdowns in major states have further dislocated supply chains even in rural areas.
Ghosh said this is going to manifest in rising prices on essentials. Cumulatively, this can significantly ratchet up core inflation.
The Reserve Bank of India (RBI) is expected to hold key interest rates in its August monetary policy in view of rising inflation.
Consumer price index (CPI) inflation increased to 6.3 per cent on yearly basis in May as compared to 4.23 per cent in April.
"This 200 bps increase on yearly terms and 100 bps increase in monthly terms is a matter for concern, and even small items are showing disproportionately larger increases," said Ghosh.
"We expect a status-quo in August. We believe the RBI will still try to find a marriage of convenience of regulatory and developmental measures and monetary policy in August policy," he said.
"The die has been cast. But the RBI can still hold out with a firm message of ratcheting up of inflationary pressures in August policy statement."
Ghosh said the CPI inflation is likely to average at 6.1 per cent in FY22 and core inflation at 6.4 per cent. "The relentless increase in global commodity prices will only imply that core CPI is unlikely to correct anytime soon."
