Consumer item prices to remain subdued for rest of the year, as demand slowdown hits inflation: RBI

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Published: June 6, 2019 2:53:03 PM

The slowdown is expected to cast a long shadow on inflation for the rest of the year, RBI said.

retail inflation in april 2019Representative Image

The ongoing demand slowdown has led to a significant reduction in inflation, with the impact seen in moderating prices across food items and clothing and apparel, the Reserve Bank of India said on Thursday in its second bi-monthly Monetary and Credit Policy statement for the current financial year 2019-20. RBI said that there has been a reduction in inflation owing to the weakening of domestic and external demand conditions. The demand slowdown has led to “a sharp broad-based decline of 60 bps in inflation excluding food and fuel in April,” it said.

The slowdown is expected to cast a long shadow on inflation for the rest of the year, RBI said. There is a “downward bias” to the inflation trajectory, the statement said. RBI acknowledged the underway consumption distress and said that the private consumption, especially in rural areas has slowed down in the previous months. The moderation in the prices of food items was witnessed in milk, oils and fats, spices, non-alcoholic beverages and prepared meals. However, the prices for meat, fish and eggs spiked, RBI said. The inflation in the prices of apparels and clothing has also touched a historical low in the all-India CPI series, the apex bank further added.

The economic slowdown that India is currently witnessing is not just confined to the country but is a global phenomenon. Major global economies have reported a slowdown and there are indications of sustained weakening in trade and manufacturing activities, RBI said. Russia, China, European countries and the US are among the economies which have been facing the slowdown for some months now. In India, “the overall slowdown in growth was cushioned by a large increase in government final consumption expenditure (GFCE), RBI said.

The demand slowdown had come to the limelight when several FMCG players reported single-digit revenue growth and said there has been weakened consumption from the rural sector which usually consumes more than urban India. Not only this, there have been reports on the decline of automobile sales in India among major automobile names such as Maruti Suzuki, Hyundai, Honda, among others. This was seen as a major cause of worry for the incumbent government and on Thursday, Prime Minister Narendra Modi decided to set up two new committees in the cabinet to tackle the economic slowdown and unemployment.

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