The central bank in its quarterly report is projecting domestic inflation, as measured by the change in the consumer price index (CPI), forecast in the range of 2.0 per cent to 3.0 per cent for the June 2013 quarter. The average inflation for the June quarters of the last five years was 2.7 per cent. The projection primarily reflects an increase in domestic agriculture prices due to the impact of drought conditions on supplies. In addition, price stimuli are expected from the tax measures implemented in April 2013 as well as some pass-through from the recent movement of the exchange rate. Inflationary pressures from domestic capacity conditions are not envisaged given the persistence of a negative output gap signifying continued weakness in domestic demand conditions.
Imported Inflation is expected to be driven by the recent movement in the exchange rate as the prices of international commodities are projected to decline. In particular, the exchange rate recorded an accelerated pace of depreciation since the September 2012 quarter reflecting increased uncertainty about the macroeconomic programme. The impact of this adjustment is anticipated to be reflected in higher domestic costs for raw materials and consumer goods.
