The upsurge in prices of vegetables is likely to continue in the immediate months.
While India is going through a phase of high food prices, there doesn’t seem to be any relief in the near future. The upsurge in prices of vegetables is likely to continue in the immediate months, said the RBI monetary policy committee. It said that the high prices of other food items such as milk, pulses, and sugar will also continue to stay at the elevated levels. The high prolonged high prices of food items have also induced a spike in both the 3-month and 1-year ahead inflation expectations of households polled by the Reserve Bank. Such sentiment upsides are also being reflected in other surveys.
Considering the above factors, the central bank has revised upwards the CPI inflation projection to 4.7 – 5.1 per cent for H2 FY20 and 3.8 – 4 per cent in H1 FY21. However, it has also been said that a pick-up in arrivals from the late Kharif season along with the government’s fiscal measures, may soften vegetable prices by early February 2020.
“Counter-cyclical monetary policy has not been as effective as expected due to inadequate monetary policy transmission. Weak monetary transmission is one of the factors that has resulted in the poor macroeconomic equilibrium the economy is currently in and it could lead to excesses in the financial sector,” said Chetan Ghate, RBI MPC Member.
The RBI MPC report also said that India’s market is running at a slower pace than the world. Initially, the global slowdown was largely blamed for the slowdown in India.
“Overall, private consumption and investment activity are weak, and business and consumer sentiment are somewhat downbeat. Further, export growth has contracted by less than import growth, indicating that the slowdown in domestic demand may be somewhat more acute than the weakness in global growth,” Pami Dua, RBI MPC Member.