Even as India’s retail inflation, as measured by the Consumer Price Index (CPI), jumped for the first time in five months to 4.81% in June, it will not have major impact on the expected retail inflation trajectory for the current fiscal, Reserve Bank of India’s Monetary Policy Committee’s (RBI MPC) External Member Ashima Goyal told fe.
“Food prices are erratic during the monsoon, but also transient so they are not expected to cause major changes in expected retail inflation,” the MPC member said. According to the RBI’s forecasts, the Q1FY24 CPI inflation is projected at around 4.6%, Q2 estimate is at 5.4%, while the estimate for Q3 and Q4 has been pegged at 5.4% and 5.2%, respectively.
Goyal, who is the Emeritus Professor of Economics in the Indira Gandhi Institute for Development Research, added that core inflation at 5.1% is actually lower than RBI projections of 5.4% for June. “Since that is the more persistent component of inflation, continuing softening in core (inflation) augurs well for the future,” Goyal said.
When asked whether the higher retail inflation print in June would further postpone chances of RBI cutting repo rate in 2023, Goyal said inflation forecasts of around 5% gives a reasonable real interest rate of 1.5% and that the RBI will pivot to rate cuts only when headline retail inflations sustains under 5% mark.
Reacting to retail inflation in June touching a three-month high of 4.81% on rising food prices Professor Jayant Varma, RBI MPC external member, said month-to-month volatility is not a matter of concern as far as he was concerned. “I wrote in my MPC statement in June that we should not read too much into two months of low inflation, and I would say now that we should not read too much into two months of high inflation. Looking 3-4 quarters ahead, I remain confident that inflation would be on a glide path towards the target.”
Asked about RBI MPC’s view when core inflation continues to be upwards of 5%, he said,“I cannot speak for the rest of the MPC, but I expect core inflation also to moderate in coming quarters due to the lagged effect of the past rate hikes, and the cooling of commodity prices.”
On possible lower monsoon rainfall and its impact on rural consumption and wages, he said, “You are right that a below-normal monsoon would be as much of a growth shock as an inflation shock. These kinds of dual shocks are particularly challenging for monetary policy. As of now however, the official forecast is still for a normal monsoon, and I hope that this forecast will prove correct.”