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Informist, Friday, Sep 20, 2024

 

--RBI paper: Food price volatility remains contingent risk for India 

--CONTEXT: Comments from RBI staff paper on state of economy 

--RBI paper: Some vegetable price shocks have begun to reverse 

--RBI paper: An unfavourable base effect may haunt Sep CPI inflation 

--RBI paper: Global oil price outlook has turned benign, may sustain 

--RBI paper:Prospects of CPI averaging 4.5% in Oct-Mar have improved 

--RBI paper: In-house model projects FY25 CPI inflation at 4.6% 

--RBI paper: In-house model projects FY26 CPI inflation at 3.9% 

 

NEW DELHI – The September CPI inflation print, which will be released on Oct 14, may be haunted by an unfavourable base effect, a paper by the Reserve Bank of India's staff said today. However, recent positive supply-side developments have increased the prospects of headline inflation averaging 4.5% in Oct-Mar, as projected by the RBI, the paper said.

 

The CPI inflation remained below the central bank's medium-term target of 4% for the second consecutive month in August at 3.65%.

 

"This (inflation staying below 4%) is a positive development, especially as the index has remained flat between July and August," the paper on the 'State of the Economy' in RBI's bulletin for September said. The paper is authored by RBI officials, including Deputy Governor Michael Patra, and the views expressed in it do not necessarily reflect those of the central bank.

 

Some of the vegetable price shocks, which have kept inflation above the RBI's target, have begun to reverse, the paper said, adding that if the reversal continues and broadens, "the persistence that characterised food inflation developments in the first quarter of 2024-25 may be behind us."

 

The base effect is such this month, that even if the general CPI index remains unchanged from the previous August, headline inflation will still rise to 4.8%. Economists project inflation to be around 5% in September. Even if inflation rises to 5% in September, the average inflation in Jul-Sep would be 4.1%, 30 basis points lower than the 4.4% projected by the RBI in its August monetary policy statement. 

 

The central bank's staff said that even as food inflation is expected to ease in the second half of 2024-25, recent experiences show that food price volatility remains a contingent risk.

 

Apart from a fall in food prices, the outlook for crude oil prices has also turned benign, and may sustain on the back of weak demand, the central bank's staff said. 

 

While the RBI projected CPI inflation to average 4.5% in the monetary policy statement last month, its in-house model projects inflation at 4.6% in 2024-25. The model also projects inflation to ease to 3.9% in 2025-26, the staff paper said.  End

 

Reported by Shubham Rana

Edited by Saji George Titus

 

 

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