In addition to concerns over monsoon shortfall and rising global commodity prices, RBI on Monday said that a hike in power tariffs could further push up inflation in the coming months.
The possibility of power tariffs rising is looming large, especially in the wake of spiralling coal prices and poor financial health of electricity distribution entities.
In its latest macro-economic review ahead of credit policy tomorrow, the Reserve Bank of India (RBI) has said that given the increases in coal and mineral oils prices, power tariffs are likely to rise in the near-term.
Noting that "utility prices, especially electricity, may need to be revised up to cover costs," the apex bank said this and other factors could become a source of "likely price pressures during the course of the year".
Inflation has stayed high for 18 months now, averaging 9.5 per cent during the period. To tame it, RBI has hiked its key policy rates 10 times since March, 2010.
The central bank is widely expected to announce another hike at it monetary policy review on Tuesday.
With coal prices on
Coal prices have jumped about 25 per cent in 2011 June quarter. Further, most power distribution companies as well as state electricity boards are deep in the red and giving calls for pushing up tariffs to improve their financial situation.
Power distribution companies are estimated to have incurred a loss of about Rs 70,000 crore (Rs 700 billion) last fiscal and it is expected to reach Rs 1,16,000 crore (Rs 1,160 billion) by 2014-15.
Talking about other sources which could fuel inflation, RBI said domestic fertiliser prices still remain disconnected with higher prices of imported fertilisers and inputs.
"Large discrete changes in administered prices also affect inflation expectations," it said.
RBI said the three important factors - significant departure of monsoon from 'normal', collapse or rebuild of global commodity price bubble, and Euro zone debt crisis assuming a full-blown proportion - could significantly alter the baseline path of growth and inflation.
Growth could slowdown and inflation pick up further if kharif crop is affected or global commodity prices surge again, RBI said.
