The Reserve Bank of India’s (RBI) Monetary Policy Committee sees retail inflation below 5% for this current fiscal and remains steadfast in its target of bringing it below 4%.
The MPC stays resolute in its commitment to aligning inflation to the 4 per cent target on a durable basis, RBI governor Shaktikanta Das said in the Monetary Policy statement.
“Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q2 at 4.4 per cent; Q3 at 4.7 per cent; and Q4 at 4.3 per cent. CPI inflation for Q1:2025-26 is projected at 4.4 per cent. The risks are evenly balanced,” Ds said
After remaining steady at 4.8 per cent during April and May 2024, increased to 5.1 per cent in June 2024, primarily driven by the food component, which remains stubborn. Core inflation (CPI excluding food and fuel) moderated, while the fuel group remained in deflation.
Rising trajectory
“Looking ahead, food price momentum has remained elevated in July. In Q2:2024-25, though favourable base effects are large, the sharper uptick in price momentum relative to earlier expectations is likely to result in a shallower softening of CPI headline inflation. Inflation is expected to edge up in Q3 as favourable base effects taper off,” Das said.
The steady progress in monsoon, pick-up in kharif sowing, adequate buffer stocks of foodgrains and easing global food prices are positives for containing food price pressures, he said, adding that adverse climate events remain an upside risk to food inflation.
Crude oil prices continue to be volatile on demand concerns and geopolitical tensions. The revision in mobile tariff rates is likely to lead to an increase in core inflation. Manufacturing, services and infrastructure firms surveyed by the Reserve Bank expect a pickup in selling prices in the second half of this year. Households’ inflation expectations have also gone up and consumer confidence has weakened.
Food inflation
Food inflation, with a weight of around 46 per cent in the CPI basket, contributed
to more than 75 per cent of headline inflation in May and June.
Vegetable prices increased sharply and contributed about 35 per cent to inflation in June. High inflation pressures persisted across other major food items also. On the other hand, the softening in core inflation continues to be broad-based, with core services inflation touching a new low in the current CPI series during May-June 2024.
The high food price momentum is likely to have continued in July.
Large favourable base effects may, however, push headline inflation downwards in July. The impact of the revision in milk prices30 and mobile tariffs needs to be watched.
