Inflation affecting growth – RBI

The RBI has claimed that the demand – supply mismatch has faced an alarming rise in global prices of commodities and this would add pressure on inflation and thus overall will have a negative impact on the economic growth.

Sources reveal, "Persistent high inflation could endanger the growth objective and also amplify risks to inclusive growth, containing inflation will have to be the predominant objective of monetary policy in the near-term," RBI said in its macroeconomic review released on the eve of the quarterly policy. While inflation is likely to soften in coming months it is likely to stay elevated above the earlier anticipated path," it said. The RBI has projected overall inflation to be at 5.5 per cent by March end.

The overall inflation for December shot up to 8.43 per cent on high prices of food items, from 7.48 per cent in November.

The food inflation has been the crux i.e the main cause of inflation holding up which has increased to an unacceptable level.

As per the third quarter monetary policy review, the demand supply mismatch has kept the prices high in reference to certain food items.

The RBI said that inflation could be contained if the government takes steps to improve supply side bottlenecks and make farm gate products easily available at the retail end.

"Domestic prices are now significantly impacted by the global commodity price movements, and hence, rising international prices are an important source of upward risk to domestic inflation,"

Source: Rediff.com/business.