Both increased government expenditures and reduced taxes will support growth in aggregate demand in 2004, though fiscal policy will provide somewhat less impetus and may even be slightly restrictive in 2005. U.S. exports are likely to continue their recent rise, because of a weaker dollar and economic recovery among our trading partners. However, rising U.S. incomes will spur imports as well.
It is expected that the CPI inflation rate would be in the range of 7.7-8.3 percent in FY06. Underlying these trends is the expectation that (i) monetary policy will remain tight, (ii) domestic fuel prices will not rise further in the remaining months of the fiscal year, and (iii) supply of essential products would be managed effectively.