RBI cautions against high inflation in future

Mumbai, July 31: | Updated: Jul 31 2007, 21:26pm hrs
The Reserve Bank on Tuesday cautioned that rising prices of crude oil and commodities as also volatility in financial markets may push up inflation again.

"Inflation outlook remains a matter of concern on account of energy and other commodity prices, increased capacity utilisation rates in developed and major emerging economies and the impact of rising wages on inflation in advanced industrial economies," RBI Governor Y V Reddy said, while releasing the quarterly review of the monetary policy.

Inflation based on wholesale prices declined to 4.41 per cent for the week ended July 14, much lower than the peak of 6.69 per cent in January, after the government and the central bank took a number of measures to check rising prices, especially of essential food items like wheat and pulses. The central bank aims at keeping inflation below 5 per cent.

RBI also warned that inflation pressures have raised concern in some of the emerging economies as well.

"Risks from global developments continue to persist, especially in the form of inflationary pressures, re-pricing of risks by financial markets and danger of downturn in some asset classes, with implications for EMEs (emerging market economies) in general," RBI said.

It also said international food and energy prices are likely to settle at higher levels than before amid indications that the sharp acceleration recorded in 2006 will not reverse.

International crude prices have crossed 75 dollars a barrel and are extremely volatile, representing a serious risk to inflation expectations.