Inflation to stay below RBI's medium term target of 4%: Survey

Signalling price stability, the Economic Survey-II today said retail inflation at the end of March 2018 will remain within RBI's medium term target of 4 per cent.

In a first, the government today presented second or mid-year Economic Survey for 2016-17, highlighting newer factors the economy faces.

The Survey said the fact that current inflation is running well below the 4 per cent target suggests that inflation by March 2018 is likely to come in below the RBI’s medium term goal of 4 per cent.

It dubbed the current low level of inflation "a historic moment", instilling confidence in price stability.

According to the Survey, CPI inflation declined to 4.5 per cent during 2016-17, with a broad-based price decline in all major commodity groups. It has been below 4 per cent for the past eight months.

It noted that the economy underwent a transition -- possibly, structural and permanent -- from high to low inflation in the last three years.

"Significant moderation in CPI headline inflation during the last three years. CPI inflation fell to a series low of 1.5 per cent in June 2017," the Survey noted.

Noting that most states and UTs saw a sharp decline in CPI inflation in 2016-17 compared with the previous year, the document stated, "Both rural and urban inflation declined in 2016-17 and the gap between rural and urban inflation has narrowed in recent months."

In sum, the Survey pointed out that geo-political risks are simply not as risky as earlier.

"Technology has rendered India less susceptible to the vicissitudes of geo-economics (OPEC) and geo-politics (the Middle East)," it added.