Inflation to persist at elevated levels for a while: RBI officials

Price pressures to ease in third quarter of 2021-22, they write in a Bulletin article

The tapering of the second wave, coupled with an aggressive vaccination push, has brightened near-term prospects for the economy but inflation will remain elevated for some more months, senior RBI officials wrote in an article on the ‘State of the Economy’ in the RBI’s monthly Bulletin.

While several high frequency indicators of activity were recovering, a ‘solid increase in aggregate demand’ was yet to take shape.

On the supply side, agricultural conditions were turning buoyant with the revival in the monsoon, but the recovery of manufacturing and services sectors had been interrupted by the second wave, they added.

The pick-up in inflation was driven largely by adverse supply shocks caused by the pandemic, including increases in margins and taxes, and sector-specific demand-supply mismatches, the article’s authors wrote.

“These factors should ease over the year as supply side measures take effect,” they contended.

Inflation, which had ruled above the tolerance band during June-November 2020, had again moved above the upper tolerance threshold in May and June.

‘Kharif harvest key’

“The sense is that inflation will persist at these elevated levels for some months before easing in the third quarter of 2021-22, when the kharif harvest arrives in markets,” they posited.

The economy was struggling to regain the momentum of recovery that had started in the second half of 2020-21 before it was interrupted by the second wave, the RBI officials added.

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