Disinflation process facing resistance from stubborn food inflation
- The Reserve Bank of India Governor said although inflation has eased, the pace of moderation is very slow mainly due to sticky food inflation.
- However, he is confident of achieving the 4 per cent target for consumer price-based inflation (CPI).
Highlights:
- “The disinflation process is getting a lot of resistance from food inflation remaining stubborn and very high, primarily because of supply-side factors which are affected by the weather conditions.
- The extreme heat in the last summer has affected cultivation of pulses and vegetable production.
- The Governor said in the last six to seven months, food inflation stood at an average of about 8 per cent.
- The RBI’s six-member Monetary Policy Committee (MPC) decided to leave the repo rate, the key policy rate, unchanged at 6.5 per cent for the eight consecutive policies due to concerns around food inflation.
- For FY25, the RBI has projected CPI at 4.5 per cent.
- When asked if the RBI may look at changing the policy stance of withdrawal of accommodation, the Governor said it would be premature to talk about it.
Factors
- The factors that led to the upward revision of the GDP projection for FY25 included strong momentum in economic activity, a pick up in rural demand and improvement in the external sector.
- The Governor said the rural consumption, which was lagging since the Covid, started to improve from the first half of the previous year.
- The FMCG (fast-moving consumer goods) sales in the rural sector have increased, the demand for Mahatma Gandhi National Rural Employment Guarantee scheme labor has gone down and the agricultural season also looks very optimistic because of the projections of above normal monsoon this year.
- Governor said as the expenditure from the government side and the private investment start picking up, rural demand will be well sustained this year.
Prelims Takeaway
- MPC
- Supply Side Inflation