Robust kharif harvest and seasonal fresh crop arrivals besides some drop in global food prices eased inflation on food items in the country in the second half of 2022-23.
In its annual report for 2022-23, the Reserve Bank of India said there were upward pressures from an early onset of summer, heat waves and unseasonal rains on food prices in the first half of the year.
The report just released said the proactive supply-side interventions by the government also helped contain price pressures.
"Timely beginning of the monetary policy tightening cycle with a cumulative increase in the policy repo rate by 250 bps since May 2022 helped ease demand pressures, anchor inflation expectations and contain the second-round impact of successive supply shocks," it added.
But for the timely monetary actions, inflation is estimated to have been higher by 90 bps, RBI said in the report.
Geopolitical dynamics and possible weather disturbances overcast the outlook for inflation in India, it added.
Headline consumer price index-based (CPI) inflation (or retail inflation) gradually declined from its peak of 7.8 per cent in April 2022 to 5.7 per cent in March 2023.
India's retail inflation was above RBI's six per cent target for three consecutive quarters and managed to fall back to the RBI's comfort zone only in November 2022.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline and vice versa.
"Common shocks emanating from the war in Ukraine - high food, energy, and other commodity prices - and the globalisation of inflation to multi-decadal high levels exerted sustained upside price pressures in India, leading to inflation remaining above the upper tolerance level of six per cent over 10 consecutive months (Jan-Oct 2022)," RBI said in the report.
Inflation eased somewhat during November-December 2022 on seasonal easing in food prices, before rising again during January-February 2023 and moderating to 5.7 per cent in March 2023, it added.
Monetary tightening by major economies and associated volatility in financial markets led to imported inflation pressures, the central bank said, adding, "input cost pressures from high industrial raw materials prices, transportation costs, and global logistics and supply chain bottlenecks impinged on core inflation."
The central bank said robust agriculture production buoyed by expectation of a bountiful rabi harvest and resilience in allied sector activity were also brightening the outlook for rural demand.
The report said risks to inflation have moderated with downward corrections in global commodity and food prices and easing of the pass-through from high input cost pressures of last year.
Globally, the cumulative increase in policy repo rate by 250 bps last year would steer the disinflationary process, along with supply-side measures to address transient demand-supply mismatch due to food and energy shocks, according to the report.
With a stable exchange rate and a normal monsoon - unless an El Nino event strikes - the inflation trajectory is expected to move down over 2023-24, with headline inflation edging down to 5.2 per cent from the average level of 6.7 per cent recorded last year.