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Informist, Monday, Oct. 28, 2024

 

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--Govt: Given overall subdued inflation, real price of money may have gone up 
--Govt: Inflation well contained except sharp price rise of a few vegetables 
--Govt: Headline CPI not most accurate gauge of underlying demand right now 
--Fin min: Anecdotal reports of AI displacing workers beginning to emerge 
--Fin min: Urban demand appears to be moderating 
--Fin min on Indian economy: "Underlying demand conditions bear watching" 
--CONTEXT: Excerpts from fin min's Sept Monthly Economic Review report 
--Fin min: Performance of Indian economy satisfactory during Apr-Sept 
 

 

NEW DELHI – The headline inflation rate seems to be influenced by a sharp rise in prices of a few vegetables, which is why it is not the most accurate gauge of underlying demand conditions in the economy, the finance ministry said Monday. India's CPI inflation was at a nine-month high of 5.49% in September as food inflation surged to 9.24% from 5.66% in August. 

"Barring a sharp rise in the prices of a few vegetables, inflation appears well contained," the ministry said in its Monthly Economic Review for September. The vegetable price index rose 3.5% on month in September. 

 

In fact, except for a few food items, the real price of money has risen due to subdued inflation, as per the economic review which was prepared by the economic division of the Department of Economic Affairs. The same team, under the leadership of the chief economic adviser, also compiles the economic survey for the year that is typically presented a day before the Union Budget.

 

In the Economic Survey for 2023-24 (Apr-Mar), the Chief Economic Adviser V. Anantha Nageswaran-led team had suggested that policymakers rethink the inflation targeting strategy and focus on excluding food prices. Considering food inflation is often supply-induced, deploying short-run monetary policy tools might be counterproductive, the survey had said. "Short-run monetary policy tools are meant to counteract price pressures arising out of excess aggregate demand growth."

 

Food items make up close to 40% of the CPI in India and have been responsible, in several instances, for volatility in the headline inflation print. "So, when food prices rise, inflation targets come under threat. Therefore, the central bank appeals to the government to bring down the increase in the prices of food products. That prevents farmers from benefiting from the rise in terms of trade in their favour," the survey had said.

 

Reserve Bank of India Governor Shaktikanta Das had said that the central bank would take a call on excluding food from the inflation-targeting strategy based on the National Statistical Office's recommendation. The statistical office is in the process of evaluating the weightage of each component in the CPI basket. The current weightage is based on 2011-12 prices.

 

"The performance of the Indian economy has been satisfactory during the first half of FY25," the monthly economic review said. However, underlying demand conditions bear watching as urban demand appears to be moderating, the report added. 

 

"Urban demand appears to moderate due to softening consumer sentiments, limited footfall due to above-normal rainfall, and seasonal periods during which people tend to refrain from new purchases," the report said. The RBI, on the other hand, has said that the urban demand has been firm. 

 

The monthly economic review also cautioned that there have been anecdotal reports of artificial intelligence replacing workers. "That needs watching."  End

 

Reported by Krity Ambey

Edited by Avishek Dutta

 

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