No concern about inflation spiralling out of control, says CEA Nageswaran

Nageswaran said firming up of Brent crude oil prices may warrant attention.

There is "no real cause for concern" about inflation spiralling out of control, Chief Economic Adviser V Anantha Nageswaran said on August 31.

Speaking to reporters after the release of GDP data for April-June, Nageswaran said the Union government as well as the Reserve Bank of India (RBI) were keeping an eye on price developments in light of the deficient rainfall in August.

"Core inflation rate is declining. Food inflation was dominated by specific commodities. So, overall, I think there is no real cause for concern that inflation would spike out of control," Nageswaran said.

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"Both the government and the central bank are taking measures in their respective domains to ensure that there is adequate supply and availability and at any price increase is moderated," he added.

A combination of uneven and deficient rainfall and supply shocks has resulted in prices of key food items such as vegetables and certain pulses increasing sharply over the last couple of months. This pushed Consumer Price Index (CPI) inflation to a 15-month high of 7.44 percent in July.

In July, retail food inflation more than doubled to 11.5 percent on the back of vegetable inflation shooting up to 37.3 percent. Both these figures are the highest since January 2020. However, the government has taken several measures to keep prices from spiralling out of control — including the sale of tomatoes at discounted prices, imposition of a 40 percent export duty on onions, a ban on the export of non-basmati white rice, a 20 percent export duty on parboiled rice, and open market sales of rice and wheat, among others.

Meanwhile, the RBI's Monetary Policy Committee has left the repo rate unchanged at 6.5 percent for three meetings in a row after hiking it rapidly by 250 basis points in 2022-23.

Economists, however, see headline retail inflation remaining elevated around the 7 percent mark in August, data for which will be released on September 12.

According to Nageswaran, food inflation is likely to cool down once fresh stocks arrive in the market and improve supply conditions.

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“However, we understand that August rains have been deficient, and therefore, both the central bank and the government will be watching the food price developments and also global food price developments,” he added.