The Reserve Bank of India has projected CPI inflation to rise to 5.4 per cent for fiscal 2023-24 months on account of supply disruptions due to adverse weather conditions as it vowed to deploy policy instruments, if necessary, to bring it down.
The central bank now sees inflation for Q2, Q3 and Q4 at 6.2 per cent, 5.7 per cent and 5.2 per cent, respectively. In June policy, the central bank had forecast Q2 inflation at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent.
RBI Inflation Projections
| Quarter | Made in August | Made in June |
| Q2 | 6.2 % | 5.2 % |
| Q3 | 5.7 % | 5.4% |
| Q4 | 5.2 % | 5.2% |
“Going forward, the spike in vegetable prices, led by tomatoes, would exert sizeable upside pressures on the near-term headline inflation trajectory. This jump is, however, likely to correct with fresh market arrivals. There has been significant improvement in the progress of the monsoon and kharif sowing in July; however, the impact of the uneven rainfall distribution warrants careful monitoring,” RBI governor Shaktikanta Das said unveiling the Monetary Policy Statement.Crude oil prices have firmed up amidst production cuts. Manufacturing, services and infrastructure firms polled in the Reserve Bank’s enterprise surveys expect input costs to ease but output prices to harden.
“We have to stand in readiness to go beyond keeping Arjuna’s eye to deploying policy instruments, if necessary. Bringing headline inflation within the tolerance band is not enough; we need to remain firmly focused on aligning inflation to the target of 4.0 per cent,” he said.
Manufacturing, services and infrastructure firms polled in the Reserve Bank’s enterprise surveys expect input costs to ease but output prices to harden, he said.
Food prices
There was a pick-up in headline inflation to 4.8 per cent in June due to an upturn in food inflation.
“The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the nearterm,” Das said.
Going by the past trends, vegetable prices may see a significant correction after a few months, he said, adding that the prospects of kharif crops have brightened, thanks to improvement in the progress of the monsoon. “Uncertainties, however, remain on domestic food price outlook due to sudden weather events and possible El Niño conditions in August and beyond.”
Global food prices are also exhibiting a hardening bias on renewed geopolitical tensions while crude oil prices have firmed up in recent weeks and its outlook is clouded by demand-supply uncertainties.
“On the positive side, inflation excluding food and fuel (core inflation) has softened by more than 100 basis points from its recent peak in January 2023.
