New Delhi, September 20
Price shocks in some vegetables have begun to reverse, and if this continues and broadens, the persistence in food inflation in the first quarter of 2024-25 may be behind us, RBI said in its September bulletin.
However, an unfavourable base effect may haunt the September number.
Headline CPI inflation came in below the Reserve Bank's target for the second consecutive month in August.
"This is a positive development, especially as the index has remained flat between July and August. Some vegetable price shocks have begun to reverse, and if this continues and broadens, the persistence that characterised food inflation developments in the first quarter of 2024-25 may be behind us," RBI said in the bulletin.
"The prospects of headline inflation averaging 4.5 per cent in the second half of 2024-25, as set out in the August 2024 resolution of the monetary policy committee, have improved. Nonetheless, in light of the recent experience, food price volatility remains a contingent risk," the bulletin read.
India's retail inflation remained below RBI's 4 per cent target for the second consecutive month.
According to data released by the Ministry of Statistics and Programme Implementation recently, retail inflation or Consumer Price Index in August was at 3.65 per cent. August retail inflation is the second lowest in the last five years. Breaching 5 per cent in June, the retail inflation rate in India softened drastically in July at 3.54 per cent.
Rising food prices had continued to be a headache for Indian consumers with the inflation rate in the food segment almost doubling year-on-year in June. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.
The eased month-on-month retail inflation, barring June, came on the heels of RBI having maintained the status quo in the repo rate for the ninth straight occasion.
Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.