Retail Inflation Softens, But Food Prices Still Elevated: RBI Bulletin

RBI Bulletin: The RBI is mandated by the government to maintain retail or headline inflation at 4 per cent, with a margin of 2 per cent on either side

RBI Bulletin: Retail inflation in India is gradually easing, though volatile and elevated food prices are disrupting the path of disinflation, according to the Reserve Bank of India's (RBI) latest Bulletin released on Wednesday.

In the June 2024 Bulletin, an article on the "State of the Economy" noted that global growth showed resilience in the first quarter of 2024. This has led many central banks to adopt a less restrictive monetary policy stance as inflation rates decline globally.

Domestically, high-frequency indicators suggest that India's real GDP growth in the first quarter of FY2024-25 is maintaining the pace achieved in the previous quarter. Additionally, prospects for agriculture are improving due to the early onset of the southwest monsoon, stated the article, authored by a team led by RBI Deputy Governor Michael Debabrata Patra.

"Headline inflation is gradually easing, driven by sustained softening of its core component, although the path of disinflation is interrupted by volatile and elevated food prices," the article's authors commented.

The RBI is mandated by the government to maintain retail or headline inflation at 4 per cent, with a margin of 2 per cent on either side. Earlier this month, the RBI's Monetary Policy Committee (MPC) decided to keep the policy repo rate unchanged at 6.50 per cent. The committee reiterated its focus on the withdrawal of accommodation to ensure inflation aligns progressively with the target while supporting growth.

The central bank projects inflation to decrease from 5.4 per cent in 2023-24 to 4.5 per cent in 2024-25. However, this forecast comes with balanced risks, including adverse climate events, input cost pressures, and crude oil price volatility.

The RBI clarified that the views expressed in the Bulletin article are those of the authors and do not necessarily represent the views of the central bank.