Inflation expectations of urban households one year ahead showed a marginal increase over the three months ahead horizon, according to the Reserve Bank’s March 2021 survey.

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The RBI has forecast consumer price inflation at 5.0 percent in Q4:2020-21, 5.2 percent in Q1 (this fiscal), 5.2 percent in Q2, 4.4 percent in Q3 and 5.1 percent in Q4.

In its credit policy report, the Monetary Policy Committee said that consumer price inflation was likely to be subjected to both upside and downside pressures.

On the positive side, the bumper foodgrains production in 2020-21 should lead to softening of cereal prices, the report said. Similarly, the elevated prices of pulses--particularly tur and urad—should also ease following the incoming rabi harvest arrivals in the markets, the overall increase in domestic production in 2020-21, and imports.

Prices of edible oils are high because of firm international prices, but the reduction of import duties and appropriate incentives to enhance local productivity could help check their rise, the report said.

On the negative side, retail prices of petroleum products have remained high. “Reduction of excise duties and cesses and state-level taxes could provide some relief to consumers on top of the recent easing of international crude prices,” the MPC report said, adding this could mitigate the pressure being felt in other segments of the economy as well.

Lastly, the impact of high international commodity prices and increased logistics costs were being felt across manufacturing and services, the MPC report said.

The MPC noted that the supply-side pressures on inflation could persist.

“The renewed jump in COVID-19 infections in certain parts of the country and the associated localised lockdowns could dampen the demand for contact-intensive services, restrain growth impulses and prolong the return to normalcy,” the report said.

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First Published:Apr 7, 2021 11:31 AM IST