Inflation outlook positive, says finmin in July economic review

Inflation outlook positive

India’s inflation outlook remains positive with core inflation at moderate levels and given the positive progress in monsoon, the finance ministry said in its monthly economic review for July that was released on August 22.

“Assuming a normal monsoon, CPI inflation for FY25 is projected at 4.5 percent by the RBI, with Q2 inflation at 4.4 percent,” the ministry noted.

India’s inflation declined to a 59-month low of 3.5 percent in July compared with 5.1 percent in the previous month, according to data released on August 12.

“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,” said the report.

India’s inflation is likely to surprise on the downside in the second quarter, according to experts. It may settle lower than RBI estimate of 4.4 percent.

However, economists have also raised their FY25 inflation forecasts on account of food concerns.

A Moneycontrol analysis shows that the rise in telecom tariffs is likely to contribute 10-15 bps in inflation in FY25.

Besides, food inflation have also been weighing on India’s outlook for consumer prices.

An RBI article recently noted that monetary policy was instrumental in keeping inflation contained.

The central bank’s monetary policy committee in its latest review in August kept the policy rate unchanged at 6.5 percent for the ninth consecutive time.

“In its August 2024 meeting…decided to keep the policy repo rate unchanged …reiterating the need to continue with the disinflationary stance of withdrawal of accommodation, initiated first in April 2022, to ensure that inflation progressively aligns with the target while supporting growth,” the finmin report said.

Experts indicate that food trajectory may deter the central bank from moving in October as well.