The trajectory of inflation is shifting down more favourably than anticipated, central bank officials wrote in an article on the ‘State of the Economy’ in the RBI’s monthly bulletin.
“As pandemic scars heal and supply conditions are restored with productivity gains, a sustained easing of core inflation can be expected, which will reinforce the growth-supportive stance of monetary policy,” they wrote in the September edition of the bulletin.
Updating the outlook for prices based on official high frequency data till Sept. 13, they wrote: “[data] point to a further decline in cereal prices. On the other hand, prices of pulses, which have been on a downward trajectory in recent months, has reversed course in September, with a sharp increase in prices of masoor. Prices of all major edible oils have edged up further in September”.
“Prices of key vegetables — tomatoes, onions and potatoes (TOP) — have registered a decline and are lower year-on-year,” they added.
Analysing the divergences in monetary policy actions between emerging market economies and their correspondence with underlying macroeconomic performance, the officials wrote, “Countries that have tightened monetary policy are also growing/forecast to grow rapidly, with several of them being commodity and services exporters benefiting from the boom in commodity prices and revenge tourism.”
“A few EMEs are also beneficiaries of spillovers and trade advantages from better growth prospects in the U.S.,” they noted.
“Some of them are the most aggressive rate hikers of 2021 and have registered a near doubling of net exports in Q2 over Q1; a few of these EMEs recovered to their pre- pandemic level of output by Q2 itself,” they observed.
The officials wrote that countries that were on a pause despite medium to high inflation were those where economic rebound was not as sharp as the decline last year and/or compared unfavourably in terms of proportion of the population that was fully vaccinated.
They said there were a few EMEs, which had undertaken further monetary stimulus or expected to follow suit including countries where inflation was low, albeit, rising.
