Fight Against Inflation Far From Over, Says RBI

The Monetary Policy Committee is committed to aligning inflation durably to the target. Till that is achieved, the recent halting declines in inflation readings have to be regarded as work still in progress, the central bank cautioned in its latest monthly bulletin for July.

While retail inflation has remained within the Reserve Bank of India's tolerance band, disinflation has been grudging and uneven. Headline inflation remains closer to 5% than to the target of 4% in its latest readings, in spite of historically low readings on core inflation and sustained deflation in fuel prices.

"The argument that food price shocks are transitory does not seem to be borne out by the actual experience over the past one year," the central bank said. It's too long a period for a shock to be termed as transitory, it added.

Food prices are clearly dominating the behaviour of headline inflation and households' inflation expectations, undermining the gains of lowering core and fuel inflation through a combination of monetary policy and supply management, it said. The accumulation of food price pressures threatens the outlook for inflation in the form of spillovers to wages, rents and expectations, according to the RBI.

High frequency food price data for July so far (up to July 12) show that cereal prices increased, mainly driven by wheat. Pulse prices also registered an increase, mainly due to gram and arhar. Edible oil prices, too, recorded increases, especially mustard and groundnut oils.

Among key vegetables, tomato, onion and potato prices recorded sequential upticks in July. This has been mainly driven by a notable decline in arrivals, possibly reflecting the impact of weather anomalies like heatwaves and unseasonal rains in major production areas.

Other Key Highlights 

• The RBI's economic activity index projects that GDP growth in Q1 is likely to turn out to 7.4%.

• In India, the second quarter of fiscal 2025 has begun with signs of quickening momentum in the economy.

• Improvement in the outlook for agriculture and the revival of rural spending have turned out to be the bright spots in the evolution of demand conditions.

• The revival in rural spending is outpacing urban segments.

• The rural recovery is yielding better results for companies in the fast moving consumer goods segment, with earnings upgrades boosting stock valuations.

• The rural recovery is yielding better results for companies in the fast moving consumer goods segment, with earnings upgrades boosting stock valuations.