RBI Monetary Policy: Professional Forecasters See Inflation Falling Sharply To 5%

Professional Forecasters surveyed by the Reserve Bank in September 2022 expect CPI inflation to soften from 7.3 per cent in Q1:2022-23, to 6.0 per cent in Q4, and 4.9-5.0 per cent in H1:2023-24.

"Long-run inflation expectations of professional forecasters - measured by their 5- and 10-year ahead expectations - remained broadly aligned around the inflation target, albeit with a slight upward drift during the pandemic period. In the September round, the 5-year ahead expected inflation rose by 10 bps to 5.0 per cent while the 10-year ahead expectation remained unchanged at 4.5 per cent," an RBI release stated.

CPI inflation has ruled at or above the upper tolerance threshold of 6 per cent since January 2022 albeit with some moderation in recent months. Looking ahead, the three months and one year ahead median inflation expectations of urban households increased by 50 bps each in the September 2022 round of the Reserve Bank's survey compared to the previous round. The proportion of respondents expecting the general price level to increase by more than the current rate also increased in both the three months and one year ahead horizons vis-à-vis the previous round.

"Looking ahead, several exogenous factors - global and domestic - will impinge on the inflation outlook. Global commodity prices have come off their highs on weaker global prospects but remain elevated and volatile. Global supply chains are gradually normalising, although they remain vulnerable to geopolitical disturbances, pandemic-related lockdowns in major production hubs, and financial market volatility," the RBI said in a statement.