Reserve Bank of India (RBI) Governor Shaktikanta Das said on Monday the statistical effect of a low base will continue to play out in inflation numbers in coming months and hence the resultant high annual inflation numbers should send alarm bells ringing.
Speaking at a press briefing with Finance Minister Nirmala Sitharaman after RBI’s board meeting, Das said the inflation momentum has been on a downward slope since October and it was primarily statistical reasons which resulted in high inflation especially in the third quarter of FY22.
The same base effect will play in different ways in the coming months, said Das.
“Today’s inflation print which will be announced by 5.30 pm.. and I said it specifically in my monetary policy statement that today’s inflation print is expected to be close to 6%. That should not surprise or create alarm,” Das said.
Das had in his 10 February statement said the Consumer Price Index-based retail inflation was inching closer to the central bank’s upper end of the tolerance band of 6%. Das said then inflation projection for the March quarter of FY22 was 5.7% on account of unfavourable base effects that ease subsequently.
“In particular, the CPI reading for January 2022 is expected to move closer to the upper tolerance band, largely due to adverse base effects,” his statement said then.
Retail inflation data is expected later in the day. On Monday, official data showed that wholesale price index (WPI) based inflation was 12.96% in January, against 2.5% in the same time a year ago.
WPI inflation in crude oil, petroleum and natural gas was over 39% in January compared to -9.4% in the same time a year ago. The government had over the week end extended the import duty relief on edible oils by another six months and further lowered the agriculture cess on imported crude palm oil to help cool their local prices.
The RBI Governor said price stability was at the top of the central bank’s mind and it meant adhering to the inflation target. The character and the content of inflation in India, however, is different from that in advanced economies, he said.
RBI had maintained the policy rates at its monetary policy announcement earlier this month.
The Finance Minister and the RBI Governor said that the ministry and the central bank have been in discussions about cryptocurrency and that there is a complete harmony in the working of both on every issue.
“There is no turfing here,” the minister said.
Sitharaman’s comments about the harmony come in the context of the government moving to tax digital virtual currencies and the central bank cautioning those investing in cryptocurrencies to keep in mind that they were investing at their own risk and needed to remember that the cryptocurrency has no underlying value, not even a tulip.
