Food inflation, which carries major weightage in the Consumer Price Inflation (CPI), is likely to soften in the coming months due top good monsoon, base effect and improvement in the kharif sowing, few Reserve Bank of India’s (RBI) monetary policy committee members said.
“Food inflation may soften due to good monsoon, steady improvement in kharif sowing, rising reservoir levels and a likely favourable rabi season output,” said RBI Governor Shaktikanta Das, showed the MPC minutes of the meeting held earlier in the month.
Adding to this, RBI’s external member of the monetary policy said many analysts expect 4 percent headline inflation by summer next year as the base effect and good monsoon sharply reduced food inflation, implying expected real policy rate is 2.5 percent.
India’s inflation declined to a 59-month low of 3.5 percent in July compared with 5.1 percent in the previous quarter, as a favourbale base helped contain pressures, according to data released on August 12.
Consumer inflation had touched 7.4 percent in July 2023.
Sequentially, however, there was 1.4 percent increase in prices in the consumer basket, with food prices rising 2.8 percent. Pulses inflation continued to remain in double digits, with cereal prices also rising 8.14 percent in July from the previous year.
Core inflation rose to 3.4 percent in July compared with 3.1 percent.
Further, Michael Debabrata Patra, deputy governor of the RBI said the recent assessment
of the neutral rate of interest suggests that the disinflationary stance of monetary policy is appropriate, especially in view of the persisting positive gap between actual inflation outcomes and the target.
"Potential output is now rising faster than its prepandemic pace; even so, a positive output gap has opened up – actual output is running ahead of potential output - warranting vigil on aggregate demand developments," Patra added.
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