The world is reeling through multiple facets of the pandemic and the consequences of the Russia-Ukraine bringing new challenges every day, an important one being the global supply chain disruption. Acknowledging that inflation has hit countries across the globe due to the ongoing war, RBI Governor Shaktikanta Das points out how war has led to globalisation of inflation.
“The war in Europe is lingering and we are facing new challenges each passing day which is accentuating the existing supply chain disruption. As a result, food, energy and commodity prices remain elevated. Countries across the world are facing inflation at decadal highs and persistent demand-supply imbalances. The war has led to globalisation of inflation,” he said.
He added that a large part of the rise in inflation is primarily attributed to a series of ‘supply shocks’ which can be linked to the war.
According to the Monetary Policy Statement released on Wednesday, Consumer Price Inflation (CPI) headline inflation rose further from 7% in March 2022 to 7.8% in April 2022, ‘reflecting broad-based increase in all its major constituents.’
“Food inflation pressures accentuated, led by cereals, milk, fruits, vegetables, spices and prepared meals,” it read.
The report stated that the tense global geopolitical situation and the consequent elevated commodity prices impart considerable uncertainty to the domestic inflation outlook.
“The restrictions on wheat exports should improve the domestic supplies but the shortfall in the rabi production due to the heat wave could be an offsetting risk. The forecast of a normal south-west monsoon augurs well for the kharif agricultural production and the food price outlook,” it read.
Das said that the faster pace of Monetary Policy normalisation undertaken by systematic Advanced Economies (AEs) is leading to volatility in global financial markets. This is reflected in sharp corrections in global equity markets, sizeable swings in sovereign bondings, US dollar appreciation, capital outflows from EMEs and even from some advanced economies, he said.
“The EMEs are also witnessing depreciation of their currencies. Global taxation concerns are growing amplifying the volatility in global financial markets,” he said.
The report pointed out that inflation risks flagged in the April and May resolutions of the MPC have materialised. Further, the projections show that inflation is likely to remain above the upper tolerance level of 6% through the first three quarters of 2022-23.
In the meantime, despite a weakening recovery across major trading partners, Das said that India has performed exceptionally well at exports.
“Merchandise exports have remained buoyant with double-digit growth for the 15th successive month in May this year while non-oil non-gold imports continued to expand at a healthy pace, pointing to recovery of domestic demand,” he said.
He added that optimism on exports of both goods and services and remittances should help contain the current account deficit at sustainable level, which can be financed by normal capital flows.
Further, as per early results of the RBI’s survey, Das said that capacity utilization in the manufacturing sector increased further to 74.5% in Q4 of FY 21-22 from 72.3% in Q3. “Capacity utilisation is also likely to increase further in the current financial year,” he said.
“The war in Europe is lingering and we are facing new challenges each passing day which is accentuating the existing supply chain disruption. As a result, food, energy and commodity prices remain elevated. Countries across the world are facing inflation at decadal highs and persistent demand-supply imbalances. The war has led to globalisation of inflation,” he said.
He added that a large part of the rise in inflation is primarily attributed to a series of ‘supply shocks’ which can be linked to the war.
According to the Monetary Policy Statement released on Wednesday, Consumer Price Inflation (CPI) headline inflation rose further from 7% in March 2022 to 7.8% in April 2022, ‘reflecting broad-based increase in all its major constituents.’
“Food inflation pressures accentuated, led by cereals, milk, fruits, vegetables, spices and prepared meals,” it read.
The report stated that the tense global geopolitical situation and the consequent elevated commodity prices impart considerable uncertainty to the domestic inflation outlook.
“The restrictions on wheat exports should improve the domestic supplies but the shortfall in the rabi production due to the heat wave could be an offsetting risk. The forecast of a normal south-west monsoon augurs well for the kharif agricultural production and the food price outlook,” it read.
Das said that the faster pace of Monetary Policy normalisation undertaken by systematic Advanced Economies (AEs) is leading to volatility in global financial markets. This is reflected in sharp corrections in global equity markets, sizeable swings in sovereign bondings, US dollar appreciation, capital outflows from EMEs and even from some advanced economies, he said.
“The EMEs are also witnessing depreciation of their currencies. Global taxation concerns are growing amplifying the volatility in global financial markets,” he said.
The report pointed out that inflation risks flagged in the April and May resolutions of the MPC have materialised. Further, the projections show that inflation is likely to remain above the upper tolerance level of 6% through the first three quarters of 2022-23.
In the meantime, despite a weakening recovery across major trading partners, Das said that India has performed exceptionally well at exports.
“Merchandise exports have remained buoyant with double-digit growth for the 15th successive month in May this year while non-oil non-gold imports continued to expand at a healthy pace, pointing to recovery of domestic demand,” he said.
He added that optimism on exports of both goods and services and remittances should help contain the current account deficit at sustainable level, which can be financed by normal capital flows.
Further, as per early results of the RBI’s survey, Das said that capacity utilization in the manufacturing sector increased further to 74.5% in Q4 of FY 21-22 from 72.3% in Q3. “Capacity utilisation is also likely to increase further in the current financial year,” he said.
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