High vegetable prices may push up retail inflation in near term: RBI Governor
“The near-term outlook is masked by risks to food inflation which might lead to an inflation uptick in November and December. This needs to be watched for second round effects, if any,” Das said.
Reserve Bank of India Governor Shaktikanta Das Friday said high frequency food price indicators “point to an increase in prices of key vegetables which may push retail inflation higher in the near-term”.
“The near-term outlook is masked by risks to food inflation which might lead to an inflation uptick in November and December. This needs to be watched for second round effects, if any,” Das said.
Going ahead, inflation outlook would be considerably influenced by uncertain food prices, Das said while announcing the monetary policy on Friday. “The ongoing rabi sowing progress for key crops like wheat, spices and pulses needs to be closely monitored. Elevated global sugar prices are also a matter of concern,” he said.
Das said global commodity prices, particularly, agricultural commodity prices, have softened, except for rice. For highly import dependent food items like edible oils, international prices continue to remain soft. Domestic milk prices are also stabilising, said Das. “Pro-active supply side interventions by the government are also containing domestic food price pressures. Crude oil has softened considerably, though it may remain volatile,” he said.
Taking into account these factors and on the assumption of normal monsoons, retail inflation is projected at 5.4 per cent for 2023-24, Das said. It is expected to be at 5.6 per cent in Q3 and 5.2 per cent in Q4. Retail inflation for the first quarter of 2024-25 is projected at 5.2 per cent, Q2 at 4.0 per cent and Q3 at 4.7 per cent.
“We have made significant progress in bringing down inflation to below 5 per cent in October 2023 despite occasional blips due to intermittent supply shocks. The summer of 2022 is behind us,” Governor said.
“Inflation will start inching up because food inflation is going to increase. We have seen onion and tomato prices going up again. So, there is no case for even thinking of lowering the repo rate. At the same time, core inflation is around 4 per cent, and therefore, there is no reason for the RBI to increase the rate,” said Madan Sabnavis, chief economist, Bank of Baroda.
“Our policy of prioritising inflation over growth, hiking policy rate by 250 basis points in a calibrated manner and draining out excess liquidity have worked well, alongside supply-side measures taken by the government, to bring about this disinflation,” Das said.
“The fact that core inflation has also trended lower and household inflation expectations have become better anchored gives us the confidence and conviction that monetary policy is doing its job. On the other hand, growth remains resilient and robust, surprising everyone on the upside,” Das said.
“Notwithstanding this progress, the target of 4.0 per cent retail inflation is yet to be reached and we have to stay the course,” he said. Headline inflation continues to be volatile due to multiple supply side shocks which have become more frequent and intense.
RBI said the trajectory of food inflation needs to be closely monitored. Intermittent vegetable price shocks could once again push up headline inflation in November and December. While monetary policy would look-through such one-off shocks, it has to stay alert to the risk of such shocks becoming generalised and derailing the ongoing disinflation process. In the midst of these uncertainties, monetary policy has to remain actively disinflationary to ensure a durable alignment of headline inflation to the target rate of 4.0 per cent, while supporting growth, Das said.
Source Link :- https://indianexpress.com/article/business/high-vegetable-prices-may-push-up-retail-inflation-in-near-term-rbi-governor-9060481/
