With a stronger recovery and consequent increasing demand side pressures, containing inflation expectations will remain as the highest priority for monetary policy during 2010-11, the Reserve Bank of India (RBI) said today in Macroeconomic and Monetary Developments report for the First Quarter.
The headline inflation has remained in double digits since February 2010, with increasing generalisation of price pressures over successive months, the RBI said. Food prices, the initial source of inflationary pressure, though moderated somewhat, still remain high, it added.
Non-food manufactured inflation accelerated from near zero in November 2009 to 7.3% by June 2010. "Given the risks that high and persistent inflation could pose to the growth momentum as well as to the progress on inclusive growth, timely initiation of monetary policy measures to anchor inflation expectations and contain the inflation persistence has become essential," the RBI said.
What started as a supply side pressure on inflation led by high food prices in response to the deficient monsoon, became increasingly more generalised, according to the RBI. In the first quarter of 2010-11, the headline inflation remained elevated in double digits, it added.
Manufactured non-food products inflation further accelerated, indicating the strengthening of demand side pressures on inflation, the RBI said.
The decision of the Government to increase the prices of administered petroleum products and allow full pass-through of global crude price increases in the case of petrol in June 2010 is estimated to directly contribute about 0.9 percentage point increase to the WPI inflation immediately, apart from the indirect impact with a lag, the RBI said.
Moderation in international commodity prices in recent months, following the downside risks to global growth from the euro area fiscal concerns, could ease some pressure on inflation.
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