New Delhi, Dec 8, 2008 : The RBI Governor Shaktikanta das stated Wednesday that the reduction in Central excise and state VAT on petrol or diesel will help ease domestic inflation. The RBI Governor Das stated that in a virtual address after the monetary policy meeting, After falling sharply between June-September, headline CPI inflation rose to 4.5 percent in October from 4.3 percent in September.
He said that this increase was mainly due to an increase in vegetable prices because of unseasonal rains in certain parts of the country.
Das also cited the hardening of international oil prices, which have kept domestic LPG prices and kerosene prices high for almost three quarters, pushing up fuel inflation to 14.3% in October.
“The persistence in high core inflation since June 2020 is a matter of concern because of input cost pressures, which could quickly be transferred to retail inflation as the demand strengthens.”
“In this context, the reduction in excise duty on petrol and diesel and VAT on diesel will result in a durable decrease inflation through direct effects as well indirect effects that operate through fuel and transportation costs.”
He also stated that price pressures could persist in the short term.
“Vegetable prices will see a seasonal correction due to winter arrivals, in view of bright prospects and the rabi crop.”
“Supply side intervention by the Government have reduced the impact of high international edible oil prices on domestic price.” Although crude oil prices have experienced some correction over the past few months, a durable containment would be dependent on strong global supply responses to match increased demand as pandemic restrictions ease.
Das noted that core inflation is still being impacted by cost-push factors, but their impact may be limited by the economy’s slack.
“Over the remainder of the year, inflation prints will be slightly higher as base effects turn negative; however, it’s expected that headline inflation would peak in Q4-2021-22 and then soften.”
The RBI also maintained its CPI-based inflation projection at 5.3% for FY22.
CPI inflation is expected decrease to 5% in Q1FY23, and to remain at 5% in Q2FY23.
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