Inflation seen range-bound this fiscal year, says RBI

Mumbai: Inflation is likely to be range-bound and stay around the current levels in this financial year as supply-side issues, along with recent price adjustments in fuel prices, will offset the recent gains, RBI said on Thursday. "Headline inflation in 2013-14 is expected to remain range-bound around the current levels," RBI said in its annual Macroeconomic and Monetary Developments report.

It added: "While sluggish global growth may dampen global inflation risks, domestically energy price adjustments, supply -side bottlenecks, including that of food, and sustained wage pressures may offset the moderation of inflation resulting from growth moderation and past monetary policy actions." Wholesale price-based inflation had moderated to 5.96 per cent in March on the back of cooling down in manufacturing inflation.

The Reserve Bank report added, however, that the recent fall in global commodity prices and subdued demand conditions may result in some further moderation in headline inflation in the coming months. RBI also noted that moderation in inflation has not been in sync with the slowdown in growth because of structural bottlenecks along with revision in administered prices, especially in fuel. Referring to price pressure arising out of food articles, the report said food inflation remains a major pressure point.

"Food inflation remains a major pressure point accentuated by continuing supply bottlenecks," the report said adding easing food inflation will depend on removing supply bottlenecks along with raising agriculture productivity. The apex bank pointed out that while cereals and pulses emerged as major pressure points for food inflation, wage pressures persist. On consumer price inflation, which still remains close to double-digits, the report said, "high CPI inflation remains a worry in the context of its increased openness and on account welfare implications."

Referring to inflation arising out from global liquidity, it said that while the immediate risk of global inflation resurgence remained low, inflation concerns may again raise its head once recovery shaped up due to the presence of excess liquidity.