Need to monitor second-order effects of persistent food inflation: RBI report

India’s inflation declined to a four-month low of 5.22 percent in December as compared to 5.48 percent in the previous month.

The Reserve Bank of India’s (RBI) report released on January 17 said stickiness in food inflation warrants careful monitoring of second-order effects.

“Headline inflation eased for the second successive month in December, although the stickiness in food inflation warrants careful monitoring of second-order effects,” the RBI 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, the RBI said in a press release.

Headline inflation eased for the second successive month in December, driven by winter easing of prices when the earth offers up a rich bounty of fruits and vegetables.

Despite the sequential easing, the level of food inflation continues to remain high, with select key products experiencing high double digits inflation, RBI report said.

The stickiness in high food inflation, in an environment of firming rural wages and corporate

salary outgoes, warrants careful monitoring of second order effects, report added.

India’s inflation declined to a four-month low of 5.22 percent in December as compared to 5.48 percent in the previous month, as food prices provided some reprieve, according to data released on January 13.

December, however, marks the fourth consecutive month of over 5 percent inflation. India’s food inflation eased below 9 percent for the first time in four months falling to 8.4 percent in December compared with 9 percent in the previous month.

RBI report said that Food inflation decelerated to 7.7 per cent in December from 8.2 per cent in November. In terms of sub-groups, a moderation in inflation was observed in respect of cereals, milk, vegetables, pulses and sugar, whereas inflation in respect of meat and fish, eggs, oils and fats, fruits, prepared meals, and nonalcoholic beverages picked up. Deflation in prices of spices persisted.

Core inflation remained steady at 3.7 per cent in December 2024, the same as in November.

High frequency food price data for January so far (up to 14th) show a moderation in rice prices, while wheat prices continued to edge up. Edible oil prices continued to witness a broad-based hardening albeit at a slower pace, than a month ago. Pulses prices, on the other hand, continued to moderate. Vegetables prices, especially of potato, onion and tomato witnessed a sharp correction, report added.