The Reserve Bank of India (RBI) expects inflation to remain above comfort levels in the current financial year. It also said high and persistent inflation could pose a challenge to the growth momentum.
Other than supply constraints, high non-food inflation and price shocks from global commodity prices were the key reasons behind the persistent high rate of inflation, RBI said. The wholesale price index (WPI) stood at 8.98 per cent in March, above RBI’s projection of 8 per cent.
“Given the risk of high inflation jeopardising growth, policies have to focus on anchoring inflationary expectations, as well as limiting the impact of the second round of supply shocks,” RBI said. The comments came a day before the annual monetary policy announcement.
While food inflation was the primary cause for the high inflation in the beginning of financial year 2010-11, higher non-food manufactured products, owing to rising input costs, contributed to high inflation towards the end of 2010-11.
Political tensions in West Asia and North Africa, coupled with the earthquake in Japan, had a severe impact on prices in India. RBI said political uncertainties and the tight demand-supply equation may keep crude oil prices at elevated levels during 2011-12. “Prices have rebounded since the earthquake in Japan and are likely to witness further pressure, especially in the case of metals and industrial raw materials, since reconstruction efforts could lead to increased demand,” RBI said.
RBI said electricity prices were likely to rise in the near term, owing to a rise in the prices of coal and mineral oils. “Most inflation-targeting countries currently have headline inflation above the target zone,” RBI said.