Fluctuating Food Prices Challenge RBI's Inflation Target Despite Promising Monsoon
The RBI's Monetary Policy Committee faces continued challenges from volatile prices of key food items and pulses, keeping CPI inflation above targets. However, a promising monsoon season and La Nina potential offer hope for moderation. CPI inflation is expected to remain above target until Q1FY26.
![Fluctuating Food Prices Challenge RBI's Inflation Target Despite Promising Monsoon](https://devdiscourse.blob.core.windows.net/devnews/09_08_2024_10_29_38_3781347.jpg)
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The volatility in prices of key food items, such as tomatoes, onions, and potatoes (TOP) and pulses, presents ongoing challenges for the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), according to a report by SBI. "Current volatility in prices of TOP and pulses continues to challenge the MPC, keeping the headline above target at 5.1 per cent in June 2024," the report revealed.
The report underscored that this price instability has kept the headline Consumer Price Index (CPI) inflation above the targeted level, reaching 5.1 per cent in June 2024. While inflationary pressures remain a critical concern, the report suggests a potential reprieve due to an above-normal monsoon and increased sowing activity, possibly strengthened by a La Nina event later this year. "The currently above-normal monsoon and sowing, backed up by a potential La Nina event later, promise relief in later quarters," the report indicated.
Significantly, the report noted that the CPI is projected to stay above the RBI's medium-term target of 4 per cent in all quarters up to the first quarter of FY26, reflecting persistent inflationary pressures in the economy. "Notably, now the CPI is expected to be above RBI's target of 4 per cent in all quarters till Q1FY26," the report added.
The MPC anticipates a moderation in inflation during the fourth quarter, which is expected to stabilize the overall CPI projection for FY24 at 4.5 per cent. The report also highlighted that the volatility in food prices, driven by the uneven monsoon distribution, poses an upside risk to current inflation projections. Therefore, SBI maintains its CPI estimate for FY25 at 4.7 per cent year-on-year.
During the latest MPC meeting, RBI Governor Shaktikanta Das predicted that inflation would ease from July onwards, citing improved monsoon conditions and a decline in global food prices. Das stated, "Global food prices showed signs of easing in the month of July after registering an increase since March 2024."
Relief in food inflation is expected due to a pickup in the southwest monsoon and healthy Kharif sowing progress. According to Das, cereal buffer stocks remain above norms. He added, "Assuming a normal monsoon and considering the 4.9 per cent inflation print, Q1 CPI inflation for the current financial year (2024-25) is projected at 4.5 per cent, with Q2 at 4.4 per cent, Q3 at 4.7 per cent, and Q4 at 4.3 per cent. CPI inflation for the first quarter of next financial year (Q1 2025-26) is projected at 4.4 per cent." (ANI)
(With inputs from agencies.)
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