Food inflation pressure may ease on improved crop outlook, says RBI governor

inflation

Food inflation pressure is likely to ease with improving prospects of kharif and rabi outputs, Reserve Bank of India (RBI) Governor Shaktikanta Das said on October 9.

“The agricultural crop outlook is turning out to be favourable, with improving prospects of kharif and rabi output. These factors could lead to an easing of food inflation pressures but this optimism is subject to weather related shocks, if any,” Das said while announcing the monetary policy meeting outcome.

The central bank reiterated committed to bringing down inflation, which remained stubbornly high for several months on the back of higher food prices.

Headline Consumer Price Index (CPI) inflation softened significantly in July and August, with base effect playing a major role in July.

Food inflation moderated to an average of 5.2 percent in July-August from average 8 percent in the previous eight months (November 2023 to June 2024).

Headline inflation moderated to 3.6 percent in July from 5.1 percent in the previous month due to base effect of 2.9 percent, which more than offset a month-over-month increase of 1.5 per cent.

In August, inflation rose to 3.65 percent.

The CPI inflation print declined to a 59-month low of 3.5 percent in July, below the RBI’s inflation target of 4 percent.

The central bank expects CPI inflation to see a big jump in September on unfavourable base and a pick-up in food prices caused by the lingering effects of a shortfall in the production of onion, potato and channa dal among other factors.

The CPI inflation would experience an unfavourable base effect of 1.1 percentage points in September, the governor’s statement said.

A sharp increase in edible oil prices seen since the second half of September and firmness in prices of wheat, gram and staples such as onion and tomato too played a role.

Vegetables production declined by 3.2 percent over 2022-23, majorly due to decline in production of onions by 19.7 percent and potatoes by 5.1 percent, the third advance estimate of horticultural production for 2023-24 released on September 20 said. Production of tomatoes and non-TOP vegetables increased by 4.4 percent and 1.4 percent, respectively.

The rabi channa dal decline by 10 percent over 2022-23, the governor’s statement said.

The central bank cut inflation projections for the second quarter of the current financial year to 4.1 percent, against 4.4 percent it projected in August.

For the third quarter, the RBI raised the projection to 4.8 percent from 4.7 percent announced in August. For Q4, it lowered the forecast to 4.2 percent from 4.3 percent in August.

The MPC decided by a 5:1 majority to keep the policy repo rate unchanged at 6.5 percent for the tenth time in a row but changed the stance to “neutral”.