The Economic Survey for 2022-23 sees the inflation challenge for 2023-24 to be a “lot less stiff” for the RBI and the government than in the current fiscal even as both are expected to be as proactive and vigilant as they have been this year.

The upcoming fiscal year 2023-24 will show less macroeconomic volatility than the current financial year, said the Survey tabled in Parliament on Tuesday.

“Both consumer price inflation and WPI have fallen below 6 per cent (which is the RBI tolerance limit for the former), and are on the descending slope of the surge that hit the economy in the first half of the current fiscal,” said the Survey.

International crude oil prices, the principal drivers of inflation this financial year, have returned to normal levels and so have prices of other major commodities. 

RBI projects CPI inflation for Q1 FY24 at 5.0 per cent and for Q2 FY24 at 5.4 per cent on the assumption of a normal monsoon.

“India’s inflation management has been particularly noteworthy and can be contrasted with advanced economies that are still grappling with sticky inflation rates. Due to the anticipated slowdown in advanced economies, inflation risks coming from global commodity prices are likely to be lower in FY24 than in FY23,” said the Survey.

However, in terms of overall risks to the benign baseline view on inflation, upside risks to India’s projected rates may outweigh the downside, it added.

RBI forecasts elevated domestic prices for cereals and spices in the near term owing to supply shortages. Milk prices are also expected to spike reflecting high feed costs. In general, climate across the world has become increasingly erratic, further fortifying upside risks to food prices. A lot depends on industrial input prices: they may ease, but on the flip side their delayed pass-through to consumer prices may contribute to the stickiness of core inflation.

The Survey also flagged the possibility of commodity prices going up if China were to return to normalcy from Covid-19 —thus reversing the recent slump in commodity prices. 

Further, the probability of a soft landing in the US economy has risen in recent months, and that might keep up the US demand for oil. Similarly, the geopolitics associated with oil can particularly affect our imported inflation.

Consumer price inflation in India went through three phases in 2022. A rising phase up to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per cent up to August 2022 and then a decline to around 5.7 per cent by December 2022, the Survey noted.

The rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in crop harvests due to excessive heat in some parts of the country. 

“Prompt and adequate measures by the Government of India and the Reserve Bank of India (RBI) have reined in the rise in inflation and brought it within the Central Bank’s tolerance limit. In contrast, major Western countries, which pumped stimulus during the pandemic periods, continue to grapple with high levels of inflation”, the Survey added.

In general, the year 2022 was marked by a return of high inflation in the advanced world after three to four decades, depending on the country. India’s retail inflation rate peaked at 7.8 per cent in April 2022. The overshoot of inflation above the upper end of the target range in India was one of the lowest in the world. “We are confident that authorities would remain vigilant and be as proactive as they were in 2022 should inflation pressures re-emerge in India in 2023,” the Survey added.

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