Sharing the reason behind this forecast, the Economic Survey mentioned, “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. However, in terms of overall risks to the benign baseline view on inflation, upside risks to India’s projected rates may outweigh the downside.”
The Economic Survey 2023 details the state of the economy in the current fiscal, while giving a sneak peek into the future.
Mentioning what may impact inflation this year, the Survey said, “For instance, the re-emergence of Covid-19 in China can trigger supply chain disruptions as was the case during the pandemic period. On the other hand, if China returns to normalcy from Covid-19, there can be a surge in commodity demand – thus reversing the recent slump in commodity prices. Further, the probability of a soft landing in the United States 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.”
Giving a sneak peek at how your household budget could be impacted by inflation this year, the Survey said, “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.”
Answering whether the prices of daily household items will ease, the Survey said, “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.”
India’s retail inflation eased below 6 per cent in November 2022, after remaining above the upper tolerance level set by the Reserve Bank of India (RBI) for 10 months since January 2022. The central bank last year projected inflation to average 6.8 per cent in the current fiscal.”RBI has projected headline inflation at 6.8 per cent in FY23, which is outside its target range. At the same time it is not high enough to deter private consumption and also not so low as to weaken the inducement to invest,” it said.
“Global economic slowdown and interest rate increases brought down commodity prices, contributing to a substantial decline in wholesale price inflation. Thus, input price pressures on Indian manufacturers abated,” it added.
“It is not wishful thinking that 2023 will show less macroeconomic volatility than its preceding financial year. Both CPI-C 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,” the Survey added.
“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 Q1FY24 at 5.0 per cent and for Q2FY24 at 5.4 per cent on the assumption of a normal monsoon,” it added.
The Consumer Price Index (CPI) inflation dipped to a year-low level of 5.72 per cent in December 2022 while wholesale or Wholesale Price Index (WPI) inflation was at a 22-month low of 4.95 per cent.