Food inflation in India is expected to fall in the coming months as plentiful monsoon rains have replenished water levels in reservoirs, FinMin’s Department of Economic Affairs said in its monthly economic review on August 22.
As per latest data, retail inflation in India came down to to 3.5 per cent in July 2024, the lowest since September 2019, primarily because of a moderation in food inflation. FinMin’s report highlighted that the steady progress in the southwest monsoon has helped kharif sowing.
Retail inflation based on Consumer Price Index-Combined (CPI-C) eased from 5.1 per cent in June 2024 to 3.5 per cent in July 2024, the lowest since September 2019. This was mainly due to a significant fall in food inflation. It declined to 5.4 per cent in July 2024 from 9.4 per cent in June 2024. The substantial fall witnessed in food inflation was helped majorly by a decline in vegetable inflation from 29.3 per cent in June 2024 to 6.8 per cent in July 2024 and mild deflation in ‘oils and fats’ and spices, FinMin’s review showed.
Replenishing water levels in reservoirs is a good sign for the current Kharif and upcoming rabi crop production, it said. This will further help in pushing food inflation down in the coming months, it added.
According to FinMin’s review, moderate core inflation and positive progress in monsoon are now putting the headline inflation outlook for the economy in positive territory.
The central bank has projected the CPI inflation for FY25 at 4.5 per cent, and Q2 inflation at 4.4 per cent.
It may be noted here that in its August 2024 meeting, the Reserve Bank of India’s Monetary Policy Committee decided to maintain the policy repo rate at 6.5 per cent. The committee emphasised the importance of continuing the disinflationary approach of withdrawing accommodation, a strategy that began in April 2022, to gradually bring inflation in line with the target while also supporting economic growth.
A few days ago, the RBI said it would have to take a more cautious path in terms of monetary policy in case high food inflation persisted and showed signs of spilling over into headline inflation.
