Volatility In Food Inflation To Continue Despite Weightage Reduction: Kotak Mahindra Bank’s Upasna Bhardwaj

The Monetary Policy Committee of the Reserve Bank of India, at its meeting scheduled for Aug. 8, is expected to reduce the food weightage in the consumer price index, according to Upasna Bhardwaj, the chief economist at Kotak Mahindra Bank Ltd.

Speaking to NDTV Profit, ahead of the RBI’s next monetary policy review on Thursday, she anticipated significant adjustments in the weightage of food within the inflation basket due to the prevailing economic conditions.

Earlier in the day, a Bloomberg report projected a potential reduction in food weightage by as much as 8 percentage points.

Bhardwaj elaborated that consumer surveys have suggested a shift towards a lower food weightage, estimating a reduction of about 5–6%.

This anticipated change in food weightage comes against the backdrop of ongoing disruptions in the food supply chain, influenced by adverse weather conditions and global supply-side challenges.

Bhardwaj pointed out that while a reduction in food weightage could contribute to some stability in the inflation index, volatility is likely to persist. India’s dependence on monsoon rains for its agricultural output means that food inflation remains inherently volatile, which can complicate decision-making for policymakers.

In addition to changes in food weightage, Bhardwaj highlighted shifts in consumer spending patterns that are expected to be reflected in the updated inflation index.

She outlined a trend towards increased spending in service-oriented categories such as recreation and personal care, while expenditures on education and clothing are likely to see a decline. These adjustments are indicative of evolving consumer preferences and are expected to influence core inflation metrics.

Looking ahead to the upcoming MPC meeting, Bhardwaj provided insights into the possible directions the RBI panel may take. Although the economy has shown resilience since the previous MPC meeting, the recent moderate rise in headline inflation might lead the RBI to hold steady on its current monetary policy stance, she said, basing her assumption on the current comfortable liquidity situation and the easing of financial conditions.

Bhardwaj also said that global market volatility and the strong base effect from last year’s high inflation numbers could contribute to a more cautious approach by the RBI.

She said that while inflation figures have looked favourable recently, due to a base effect from last year’s higher numbers, food inflation continues to be a concern. She speculated that the RBI might opt for a policy pause at this meeting, with a potential reassessment of its stance in the October policy review. Any immediate changes to monetary policy could add pressure on the rupee and impact overall economic stability.