Inflation turning risky, warns RBI

Global commodity prices reason

“Growth has rebounded strongly but inflationary pressures persist, driven both by domestic demand and increasing global commodity prices,” RBI said in its second Financial Stability Report.

Global prices of major commodities, including crude oil, gold, iron ore, silver and farm goods like cotton have risen sharply, it said. Crude oil price are trading at two-year high of US$92 per barrel.

Structural mismatches

The report also noted that the structural demand-supply mismatches in several commodities have contributed to high domestic food price inflation. In particular, prices of protein-rich foods like eggs, milk, pulses, meat and fish as well as fruits and wheat in India has been ruling at high levels.

The causative factors include rising income, changing consumption pattern, stagnant agricultural productivity and rising global prices, it said.

For the week ended December 18, food inflation surged to a 10-week high of 14.44 per cent driven by higher prices of vegetables, fruits and protein-rich products like milk, egg, fish and meat.

The report said upswing in food prices, particularly of sugar, cereals and edible oil at the global level is a major concern to India, as it limits the use of food imports as a tool for curbing domestic food inflation which continues to rule at elevated levels, it added.
Besides, excess capital flows also pose challenges for exchange rate, interest rate and inflation environment, it said.