Household consumption poised to grow faster in Q2 as headline inflation eases: RBI bulletin

Reserve Bank of India

Household consumption is poised to grow faster in second quarter of the current financial year as headline inflation eases, Reserve Bank of India’s (RBI) latest monthly bulletin said on September 20.

“Household consumption is poised to grow faster in Q2 as headline inflation eases, with a revival of rural demand already taking hold,” the RBI's monthly State of the Economy article said.

Consumer price index (CPI) inflation came in below the Reserve Bank’s target for the second consecutive month in August, although in light of the recent experience, food price volatility remains a contingent risk, bulletin said.

The monthly State of the Economy article includes Deputy Governor Michael Patra - one of the three RBI representatives on the Monetary Policy Committee (MPC) - as one of its co-authors. The views expressed in the article do not reflect the central bank's official stance, RBI said in a release.

India’s inflation rose slightly to 3.65 percent in August compared with 3.6 percent in the previous month, as a favourable base from last year helped contain consumer inflation despite an uptick in food categories.

The consumer price index print is a tad higher than the Moneycontrol poll median of 3.5 percent. Economists at the MC poll ranged between 3.2 – 4 percent.

Some vegetable price shocks have begun to reverse, and if this continues and broadens,
the persistence that characterised food inflation developments in the first quarter of 2024-25 may be behind us, Bulletin said.

Further, it added that an unfavourable base effect may haunt the September number.

The outlook for international crude prices has turned benign and may be sustained,
given developments relating to OPEC plus alluded to earlier and weak demand, Bulletin added.

The prospects of headline inflation averaging 4.5 per cent in the second half of 2024-25, as set out in the August 2024 resolution of the monetary policy committee, have improved. Nonetheless, in light of the recent experience, food price volatility remains a contingent risk, it added.