The price developments in the first-four months of the year were broadly in line with the Bank’s earlier forecasts that inflation would peak in the first quarter of 2016 and, thereafter, decline gradually over the forecast horizon.
The May forecast by the Bank reinforced the earlier forecasts which showed that inflation would gradually decline from the second quarter towards the target band by mid-2017, barring any unanticipated shocks.
The expected disinflation process is envisioned to be supported by continued monetary policy tightness, keeping on track fiscal consolidation, continued stability in the local currency, gradual improvement in the macro fundamentals, leading to lower inflation expectations.
There are however risks to the inflation outlook. These included unanticipated upward adjustments in utility tariffs and domestic prices of petroleum products as well as possible second round effects from such adjustments on prices.
The slow but persistent pickup in food inflation, since August 2014, was also a source of concern for inflation.
