Inflation is set to average far higher than 6 percent in the current quarter, as per an article in the Reserve Bank of India's (RBI) monthly bulletin.
"The incidence of supply shocks is not over - elevation in vegetable prices has extended into the first half of August. Accordingly, headline inflation is expected to average well above 6 percent in the second quarter," said the regular State of the Economy article - which includes RBI Deputy Governor Michael Patra as one of its co-authors - published in the central bank's monthly bulletin on August 17.
The views expressed in the State of the Economy article do not reflect the central bank's official stance.
The comments in the article come after data released on August 14 showed headline retail inflation shot up to a 15-month high of 7.44 percent in July - significantly higher than economists' expectations of 6.6 percent.
Also Read: What the economist who got July CPI inflation (almost) right thinks will happen next
Meanwhile, on August 10, the RBI itself had raised its inflation forecast for 2023-24 by 30 basis points to 5.4 percent - an upward revision that was primarily driven by a huge 100-basis-point increase in the projection for the ongoing July-September quarter to 6.2 percent. However, the comments in the State of the Economy article seem to suggest inflation may average more than even 6.2 percent July-September - as several economists seem to think.
Also Read: Is the RBI's new inflation forecast already outdated?
As per the RBI article, the rise in inflation in June - to 4.87 percent from 4.31 percent in May - "mutated" in July as the "unprecedented" shock to tomato prices had an effect on prices of other vegetables. The break-up of the 257-basis-point increase in inflation has been assessed as follows: 290 basis points of positive price momentum – the highest in the current CPI series so far – and a favourable - therefore, negative - base effect of 45 basis points.
The RBI Bulletin also warned that the "shadow of El Nino" continues to loom over the second half of the year and the outcome for food inflation in the rabi season.
"Yet another upside risk is the outlook on crude oil prices that is marred by 'engineered' supply shortfalls. There is a diminishing probability of crude price pressures easing over the rest of the year. This bodes ill for net energy importers like India," it added.
As per data from the government's Petroleum Planning & Analysis Cell, the average price of India's crude oil basket so far in August is $86.83 per barrel - 8 percent higher from July. It is worth noting that the RBI's inflation forecasts assume a crude oil basket price of $85 per barrel.
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