RBI monetary policy review: Petrol prices, HRA impact, monsoon to determine inflation in 2018

 BusinessToday.in        Last Updated: February 7, 2018  | 16:03 IST
RBI monetary policy review: Petrol prices, HRA impact, monsoon to determine inflation in 2018
RBI Governor Urjit Patel

The Reserve Bank of India (RBI) in its monetary policy statement said the international crude prices, monsoon and HRA impact will determine the inflation in the first half of FY19. RBI Governor Urjit Patel said the inflation is estimated at 5.1 per cent in Q4, including the HRA impact.

MPC said the inflation outlook beyond the current year is likely to be shaped by several factors including the international crude oil prices have firmed up sharply since August 2017. MPC noted that non-oil industrial raw material prices have also witnessed a global uptick. Firms polled in the Reserve Bank's IOS expect input prices to harden in Q4.

MPC further said that in a scenario of improving economic activity, rising input costs are likely to be passed on to consumers. However, the monetary policy statement did not assess any impact of the newly introduced minimum support prices (MSPs) for kharif crops announced in the Union Budget 2018-19, saying the exact magnitude of its impact on inflation cannot be fully assessed at this stage.

The MPC added that inflation outlook will depend on the monsoon, which is assumed to be normal.

Taking these factors into consideration, CPI inflation for 2018-19 is estimated in the range of 5.1-5.6 per cent in H1, including diminishing statistical HRA impact of central government employees, and 4.5-4.6 per cent in H2. The projected moderation in inflation in the second half is on account of strong favourable base effects, including unwinding of the 7th CPC's HRA impact, and a softer food inflation forecast, given the assumption of normal monsoon and effective supply management by the Government, it said.

CPI inflation excluding food and fuel increased further in November and December, largely on account of increase in housing inflation following the implementation of higher house rent allowances (HRA) for government employees under the 7th central pay commission (CPC) award.

 

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