The Reserve Bank of India (RBI) has projected lower retail inflation of 4.5% in FY23 amid expectations of a normal monsoon this year and crude oil price not elevating beyond a level.

The inflation forecast for 2021-22 is 5.3%.

While the US Federal Reserve and Bank of England among others are gearing up to combat against price increases, the RBI is not unduly worried despite crude oil prices rising above $90 per barrel. As per RBI calculations, consumer price index (CPI) inflation will be elevated during the first half of FY23 but progressively fall to 4% in the third quarter and 4.2% in the fourth.

The RBI’s optimism springs from supply-side interventions by the government and increase in domestic production. The central bank believes that food prices would soften in the backdrop of winter crop arrivals and increase in foodgrain production.

“The CPI (consumer price) inflation trajectory has moved in close alignment with our projections. In particular, the softening of food prices is providing welcome relief,” RBI Governor Shaktikanta Das said while unveiling the monetary policy.

The RBI has also looked closely at the global oil price scenario before making its inflation projection. Das, however, admits that the “hardening of crude oil prices presents a major upside risk to the inflation outlook”.

Core inflation, which excludes food and fuel, is what bothers the RBI as it has remained around 5% this year. The RBI expects companies not to increase prices of their goods and services due to subdued demand. Supply chain disruptions would also ease as the Omicron variant of coronavirus weakens. 

CPI inflation for 2022-23 is projected at 4.9% for Q1, 5% for Q2, 4% for Q3 and 4.2% for Q4, with risks broadly balanced.

The RBI has a target of keeping CPI inflation at 4%, within a band of plus or minus 2%.