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Indicators show inflation may be peaking, RBI says – Economic Times

The Reserve Bank of India in its July bulletin has said that there are indications that inflation may be peaking, adding that the prognosis may be premature.

Inflation, measured by the consumer price index (CPI), came in at 7.01% in June compared with 7.04% in May and 7.79% in April, still above the MPC’s tolerance band.

Several indicators suggest that the Indian economy is making resilient progress in the first quarter of FY23, in spite of the drag from global spillovers, elevated inflation and some slackening of external demand as geopolitical developments take their toll on world trade, the paper said.

“A sliver of hope has become visible in the recent moderation in global commodity prices, and especially food prices. This suggests that unjust inflation may be peaking, providing a breather for beleaguered nations across the world,” the report said.

Although the number of new Covid-19 cases increased and an intense heatwave in major regions limited economic activity, most of the high-frequency indicators showed improvement, especially in services sector activity.

“As monetary policy works through into the economy and inflation falls back into the tolerance band by the fourth quarter of 2022-23, it will be the playing out of the baseline scenario,” the bulletin read.

“In an alternative simulation which incorporates the policy actions undertaken so far, the easing of inflation could be even sooner and faster. The key is the direction of change in inflation – not its level – in these extraordinary times.”

The RBI has asserted that the Indian economy is showing resilience in a global landscape marred by fears of recession and war.

“The recent revival of the monsoon, the pick-up in manufacturing and services, stabilisation of inflation pressures and strong buffers in the form of adequate international reserves, sufficient foodgrain stocks and a well-capitalised financial system together brighten the outlook and strengthen the conditions for a sustainable high growth trajectory in the medium-term.”