Reduction in taxes on fuel to ease domestic inflationary pressure: RBI guv

New Delhi: Reduction in Central excise, as well as state VAT on petrol and diesel, is expected to ease domestic inflationary pressure, RBI Governor Shaktikanta Das said on Wednesday.

In a virtual address post, the monetary policy meeting, the RBI Governor Das said that headline CPI inflation ticked up in October to 4.5 percent from 4.3 percent in September, after falling sharply between June and September.

This uptick, he said mainly reflected a spike in vegetable prices due to unseasonal rains in some parts of the country.

Besides, Das cited the hardening of international energy prices that have kept domestic LPG and kerosene prices elevated for nearly three quarters, edging up fuel inflation to 14.3 percent in October.

"The persistence of high core inflation since June 2020 is an area of policy concern in view of input cost pressures that could rapidly be transmitted to retail inflation as demand strengthens."

"In this context, the reduction of excise duty and VAT on petrol and diesel will bring about a durable reduction in inflation by way of direct effects as well as indirect effects operating through fuel and transportation costs."

Furthermore, he said price pressures may persist in the immediate term.

"Vegetable prices are expected to see a seasonal correction with winter arrivals in view of bright prospects for the rabi crop."

"Supply-side interventions by the Government have limited the fallout of continuing high international edible oil prices on domestic prices. Though crude oil prices have seen some correction in the recent period, a durable containment of price pressures would hinge on strong global supply responses to match the pick-up in demand as pandemic restrictions ease."

However, Das pointed out that cost-push pressures continue to impinge on core inflation, though their pass-through may remain muted due to the slack in the economy.

"Over the rest of the year, inflation prints are likely to be somewhat higher as base effects turn adverse; however, it is expected that headline inflation will peak in Q4:2021-22 and soften thereafter."

In addition, the RBI retained its CPI-based inflation projection at 5.3 percent for FY22.

The CPI inflation is expected to ease to 5 percent in Q1FY23 and stay at 5 percent in Q2FY23.

Source: IANS