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Inflation forecast retains at 6.7% in FY23

Inflation has recently eased and the supply outlook is improving, helped by some easing of global supply constraints, as per the MPC. Food, metal and oil prices have come off from their peak. Stocks of key food item rice are well above the buffer norms and the rising kharif sowing on normal monsoon augurs well for the domestic food price outlook. As on August 4, 2022, the southwest monsoon rainfall was 6% above the long period average (LPA). Meanwhile, the MPC is concerned about the impact of global concerns on the prices. Spillovers from geopolitical shocks and appreciation of the US dollar are imparting considerable uncertainty to the inflation trajectory, the MPC stated. Firms polled in the Reserve Bank’s enterprise surveys expect input cost pressures to soften across sectors in H2FY23. Cost pressures are, however, expected to get increasingly transmitted to output prices across manufacturing and services sectors. On the assumption of normal monsoon and crude oil prices at $105/bbl, the RBI retained inflation forecast at 6.7% for FY23 with Q2 at 7.1%; Q3 at 6.4% and Q4 at 5.8%. CPI inflation for Q1FY24 is projected at 5.0%.