Finance Ministry on what would dampen inflation

Finance Ministry on what would dampen inflation

Easing international commodity prices and new Kharif arrival are set to dampen inflationary pressures in the coming months, the finance ministry’s department of economic affairs said in its monthly economic review released on Thursday.

The finance ministry report further said that a rapid deterioration in global growth prospects, coupled with high inflation and worsening financial conditions, has increased fears of an impending global recession.

It expects hiring by firms to witness an improvement in upcoming quarters driven by a rebound in new business hiring as firms continue to benefit from the lifting of the Covid-19 restrictions and optimism engendered by the vigorous sales volumes experienced during the festive season.

The FinMin report also pointed out that persistently high inflation has triggered an accelerated normalisation of interest rates in several advanced economies.

“The impact of increased borrowing costs and stubbornly high inflation is beginning to show in multiple leading indicators of global economic activity,” it added.

Inflation dynamics in India

Inflation dynamics in India since the outbreak of the Covid-19 pandemic have been influenced by various domestic and global factors.

“While low global commodity prices led to subdued wholesale inflation in 2020, pandemic-induced domestic restrictions were the initial drivers of retail inflation during this period. The year 2021 however commenced with rising global commodity prices as pandemic-hampered global supply chains could not match the recovering global demand,” the report said.

Commodity prices got a further boost in early 2022 with the onset of the Russia-Ukraine conflict, the report said.

India’s exports businesses

On India’s exports businesses, it said, “Global slowdown may dampen India’s exports businesses outlook; however, resilient domestic demand, a re-invigorated investment cycle along with strengthened financial system and structural reforms will provide impetus to economic growth going forward.” 

India’s exports entered negative territory after a gap of about two years, declining sharply by 16.65% to $29.78 billion in October, mainly due to global demand slowdown, even as the trade deficit widened to $26.91 billion, as per the data released by the commerce ministry.

Key export sectors – gems and jewellery, engineering, petroleum products, ready-made garments of all textiles, chemicals, pharma, marine products, and leather – recorded negative growth during last month.

During April-October this year, exports recorded a growth of 12.55% to $263.35 billion while imports surged 33.12% to $436.81 billion.

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