The Reserve Bank of India (RBI) projected the retail inflation falling to below 5 per cent on considerable certainty on the food price outlook and some softening in the growth of input costs.
RBI Governor Shaktikanta Das said, “Going forward, the inflation trajectory will be shaped by the evolving food inflation outlook. Rabi sowing has surpassed last year’s level. The usual seasonal correction in vegetable prices is continuing, though unevenly. Yet considerable uncertainty prevails on the food price outlook from the possibility of adverse weather events. Effective supply-side responses may keep food price pressures under check.”
The continuing pass-through of monetary policy actions and stance is keeping core inflation muted, he said, adding that crude oil prices, however, remain volatile.
“Taking into account these factors, CPI inflation is projected at 5.4 per cent for 2023-24 with Q4 at 5.0 per cent. Assuming a normal monsoon next year, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 5.0 per cent; Q2 at 4.0 per cent; Q3 at 4.6 per cent; and Q4 at 4.7 per cent. The risks are evenly balanced,” Das said.
The inflation has seen a significant moderation from the highs of the summer of 2022. Over the last two years, monetary policy has prioritised inflation over growth, undertaking calibrated increase in policy repo rate by 250 basis points and withdrawal of stimulus measures.
Monetary policy was supported by pro-active supply-side measures by the government. That said, the job is not yet finished, and we need to be vigilant about new supply shocks that may undo the progress made so far, the governor said.
From its October 2023 trough of 4.9%, CPI inflation increased successively in the next two months to 5.7 per cent by December.
Food inflation, primarily y-o-y vegetable price increases, drove the pick-up in headline inflation, even as deflation in fuel deepened. Core inflation (CPI inflation excluding food and fuel) softened to a four-year low of 3.8 per cent in December.
The governor in his speech said the recurring food price shocks could interrupt the ongoing disinflation process, with risks that it could lead to the de-anchoring of inflation expectations and generalisation of price pressures.
Manufacturing firms covered in the Reserve Bank’s enterprise surveys expect some softening in the growth of input costs and selling prices in Q4:2023-24, while services and infrastructure firms expect higher input cost pressures and growth in selling prices.