Supply shocks play a significant role in shaping inflation dynamics, with first and second-round effects exerting distinct but interconnected influences on prices and economic activity. The first-round effects typically manifest as immediate changes in the prices of goods and services directly affected by the shocks originating from a variety of sources, including geopolitical events, natural disasters, technological innovations and policy interventions
Mumbai:
Extreme weather conditions may pose a risk to inflation, along with prolonged geopolitical tensions that could keep crude oil prices volatile, the Reserve Bank’s April Bulletin said on Tuesday.
Supply shocks play a significant role in shaping inflation dynamics, with first and second-round effects exerting distinct but interconnected influences on prices and economic activity. The first-round effects typically manifest as immediate changes in the prices of goods and services directly affected by the shocks originating from a variety of sources, including geopolitical events, natural disasters, technological innovations and policy interventions, explained an article in the Bulletin.
The retail based on the Consumer Price Index (CPI) has eased to 4.9 per cent in March after averaging 5.1 per cent in the preceding two months.
The Reserve Bank, which mainly factors in CPI while arriving at its bi-monthly monetary policy, has kept the key interest rate unchanged at 6.5 per cent since February 2023, citing concerns on the inflation front.
An article on ‘State of the Economy’ published in the Bulletin further said global growth momentum has been sustained in the first quarter of 2024, and the outlook for world trade is turning positive.
Treasury yields and mortgage rates are ticking up in major economies as expectations of interest rate cuts are being pared.
“In India, conditions are shaping up for an extension of a trend upshift in real GDP growth, backed by strong investment demand and upbeat business and consumer sentiments,” the article said.
The RBI, however, said the views expressed in the Bulletin article are of the authors and do not represent the views of the Reserve Bank of India.