RBI MPC Minutes: Food inflation remains main factor behind slow pace of disinflation

Reserve Bank of India

Majority of Reserve Bank of India (RBI) monetary policy committee members expressed caution on food inflation, which is slowing the pace of disinflation.

“Food inflation is the main factor behind the grudgingly slow pace of disinflation. Recurring and overlapping supply-side shocks continue to play an outsized role in food inflation,” said RBI Governor Shaktikanta Das in minutes.

Further, Rajiv Ranjan said while core inflation has softened further, food inflation risks have remained elevated.

In May, India’s headline retail inflation eased to the lowest in a year at 4.75 percent, from 4.83 percent in April.

Core inflation, which excludes volatile components such as food and fuel, is now at an all-time low of below 3 percent.

However, the Consumer Price Food Index or CPFI remained almost flat at 8.69 percent versus 8.7 percent a month ago.

In its latest policy review, the Reserve Bank of India (RBI) maintained its FY25 inflation projection 4.5 percent but added that food prices could continue to be sticky.

Among food, while prices of vegetables eased marginally to 27.33 percent in May versus 27.80 percent a month ago, pulses saw a slight rise to 17.14 percent from 16.84 percent. Cost of cereals were also up on a month-on-month basis.

Meat and fish prices saw a significant decline to 7.28 percent last month from 8.17 percent in April.

RBI Deputy Governor Michael Debabrata Patra said Food prices are persisting for too long as the principal impediment to a faster disinflation. The Indian economy remains hostage to intersecting food price shocks. Their repetitive occurrence calls for intensifying monetary policy vigil to ward off spillovers to other components of inflation and to
expectations.

"This also warrants looking through the statistical soft patch in inflation’s trajectory that is anticipated during July-August 2024, while staying prepared to blunt the uptick that is expected from September. Food prices are holding back any consideration of possible changes in the monetary policy stance," Patra added.

However, Ashima Goyal said good monsoon predicted has already set in and will likely reduce food inflation.

The RBI's latest monthly bulletin on June 19 said the goal of aligning inflation with the target of 4 percent will remain work in progress as long as food prices pressure persists.

“As long as food price pressures persist, however, the goal of aligning inflation with its target remains a work in progress,” the RBI's monthly State of the Economy article said.

In June monetary policy, the central bank maintained its FY25 inflation projection of 4.5 percent but added that food prices could continue to be sticky.

The central bank projected CPI inflation for Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent.