Prime Minister's Economic Advisory Council Chairman C Rangarajan said on Wednesday the economy was witnessing 'cyclical overheating' but expected inflation to soften in coming months with good monsoon this year.

"Yes, to some extent there is cyclical overheating... inflation would soften this year partly because of factors operating in the current year and monsoon leading to a good agricultural season this year," he told reporters on the sidelines of a conference.

He described cyclical overheating as one that occurs when the existing capacity was fully utilised and the demand was still increasing.

"We should really see that cyclical overheating doesn't get translated into structural overheating, that means there are no structural imbalances in the economy," Rangarajan said. 

Inflation would soften partly because of the factors operating in the current year as well as because of the larger base of the previous year, Rangarajan said.

"The inflation rate last year picked up very strongly from June onward last year and so there is a base effect also, ...if monsoon is good and the agricultural season turns out to be as good as last year or even better, then the expectations will have a dampening effect," he said.