11.
PASSAGE (Next 5 Questions)
The RBI expects inflation at 6.7 percent in 2022-23. Recent government data also suggests that inflation has become more broad-based. Excluding the volatile components such as food and fuel, core retail inflation was around 7 percent in April with almost all subgroups in the index witnessing elevated inflation. And considering the inflation in the pipeline - the wholesale price index continues to be in double digits - price pressures are unlikely to dissipate in the immediate term. According to analysts, while manufacturing firms have been passing on the rise in input costs, it remains incomplete in the case of the services sector. However, as demand firms up, the pass through is likely to gather traction. This combination of factors suggests that inflation may not fall dramatically as and when commodity prices fall - prices may prove to be a tad sticky on the downside. The RBI's revised quarterly forecasts for inflation also seem to suggest so - inflation has now been projected at 7.5 percent in the first quarter, and 7.4 percent in the second quarter, trending downwards thereafter to 6.2 percent in the third quarter, and 5.8 percent in the fourth quarter.
Implicit in these quarterly inflation forecasts is also the acknowledgment that inflation will likely exceed the upper threshold of the central bank's inflation targeting framework for three consecutive quarters. Considering the risks that the 'unanchoring' of inflation and inflation expectations pose to macroeconomic stability, and the country's growth prospects, the central bank must look beyond its quotidian responsibilities and continue to focus on maintaining price stability, attaching primacy to inflation management.
What are the volatile components of inflation?
