RBI's Monetary Policy Committee external member Ashima Goyal on Friday said that the headline inflation should come down to core inflation levels very soon. Earlier this week, the government released the Consumer Price Index Numbers, which showed that the headline inflation had moderated to an average of 5.5 per cent during April-December 2023 from 6.7 per cent during 2022-23.
The retail inflation, based on Consumer Price Index Numbers, eased to a three-month low of 5.10 per cent in January 2024 against 5.69 per cent during the previous month, the latest data released by the Ministry of Statistics & Programme Implementation showed.
In contrast, the deflation in CPI fuel deepened and core inflation (CPI inflation excluding food and fuel) had moderated to a four-year low of 3.8 per cent in December. The decline in core inflation continued to be broad based with inflation remaining steady or softening across its constituent groups and sub-groups.
Talking about challenges around the inflation, Goyal said: "Research now suggests, in current situations, it is core which is more steady and that affects inflation expectations and headline comes down to core. So we should see this happen soon." Goyal was speaking at the IIM Kozhikode's conference on macroeconomics, banking, and finance in Mumbai.
According to the official forecast of the RBI, the Consumer Price Index (CPI) inflation is projected to average 5 per cent in the current quarter, before decreasing to 4 per cent in July-September. Nevertheless, it is anticipated to increase to 4.7 percent in the first quarter of 2025.
RBI Governor Shaktikanta Das, during the latest MPC meeting, said that they are projecting CPI inflation at 5.4% with the fourth quarter that is the current quarter projection of 5%. Now, assuming a typical monsoon for the upcoming year, CPI inflation is predicted to be 4.5% for the upcoming fiscal year 2024–2025, with Q1 at 5%, Q2 at 4%, Q3 at 4.6%, and Q4 at 4.7%.
MPC also voted to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. Commenting on the stance, Goyal said: "The stance has to be understood coming from the pandemic times, when there was for the first time huge expansion of (RBI's) balance sheet, large amount of liquidity injected and overall stimulus, and therefore withdrawal. But currently, since we are not at the (inflation) target, we still want to focus on disinflation and reaching the inflation target. So we continue with that 'withdrawal' term. But now it has to be interpreted strictly in terms of the real rate or the policy rate still being disinflationary."