Core inflation has slowed down, according to the Reserve Bank of India (RBI), although headline inflation is expected to average well above 6% in the second quarter of FY24. The central bank released the August 2023 bulletin on Thursday.
According to the RBI, the unusual shock to tomato prices expanded to the cost of other vegetables, which changed the rate of inflation from its June reading to July.
“Headline inflation increased in June and is forecast to soar during July and August, driven by vegetable costs, after falling to a low of 4.3 percent in May 2023. While the spike in vegetable prices might swiftly subside, potential El Nio weather conditions and world food costs need to be constantly monitored against the backdrop of the south-west monsoon’s so far skewed pattern, according to RBI Governor Shaktikanta Das in the bulletin.
The central bank also pointed out that despite a solid first quarter, trade and industrial production are weaker than expected, which is slowing down the global recovery. In this difficult global environment, the Indian economy is beginning to pick up momentum in the second quarter of 2023-2024. The domestic drivers of private consumption and fixed investment are countering the drag from the reduction in exports.
According to RBI Bulletin August 2023, the rise in vegetable prices, which is being led by tomatoes, would significantly push the inflation trajectory upward in the next months. But with new competitors entering the market, this growth will probably level out.
“The development of the monsoon and kharif sowing in July has significantly improved; however, the impact of the unequal rainfall distribution demands cautious observation. Prices for crude oil have risen amid output reductions. According to the Reserve Bank’s enterprise surveys, manufacturing services and infrastructure companies anticipate lower input costs but higher output prices.
In light of these variables and a normal monsoon, the CPI inflation rate is predicted to be 5.4% for 2023–2024, with Q2 inflation of 6.2%, Q3 inflation of 5.7%, and Q4 inflation of 5.2%, with risks being evenly distributed. The central bank estimated CPI inflation for Q1:2024–2025 at 5.2% on Thursday.
On Thursday, August 10, the RBI decided to maintain its policy rates and attitude, as predicted, notwithstanding the recent surge in food inflation and the US Fed’s rate increase in July.
The monetary policy committee (MPC), headed by Shaktikanta Das, unanimously opted to maintain the repo rate at 6.50 percent for a third meeting in a row. Additionally, the MPC opted to maintain the policy stance of “Withdrawal of Accommodation.”
Das claimed that despite a decrease in inflation, more work remains. He emphasized that the RBI is committed to achieving the 4% inflation objective for a longer length of time. He claimed that despite difficulties in the global economy, India had maintained its ability to control inflation.
