Generalised price pressures softened as growth deceleration eased demand, the Reserve Bank of India (RBI) said in its Macroeconomic and Monetary Developments for FY12. This is also evident in a significant decline in core inflation during Q4 FY12, the central bank said, adding that the pricing power of companies has waned with moderation in demand.
"However, the path of inflation in FY13 could remain sticky around current levels due to high oil prices, large suppressed inflation, exchange rate pass-through, impact of freight and tax hikes, wage pressure and structural impediments to supply response," the RBI said in a statement.
Primary food inflation reversed after a sharp decline as transitory effects waned, the RBI said. Energy prices are likely to remain a significant source of inflation ahead, as suppressed domestic prices of oil, coal and electricity prices are adjusted upwards, it added.
Wage price pressures in both rural and urban areas are yet to soften, the RBI said, adding that consumer price inflation also remains high.
Inflation expectations moderated in Q4 FY13 but remain high, according to the RBI. With significant upside risks to inflation, monetary policy needs to keep them anchored, while shifting the balance of policy to arrest the deceleration in growth momentum, it said.