Food price pressures an obstacle in swifter fall in retail inflation target of 4%: RBI

The Reserve Bank of India has noted that the food price pressures is a major hinderance in swifter fall in retail inflation to its target of 4 per cent. Retail inflation based on Consumer Price Index (CPI) has been on a decline since December and was at 5.09 per cent in February.

The Wholesale Food Index (WPI) picked up from 3.8% in January to 4.1% in February, while primary articles’ prices rose 4.5%, compared with 3.84% in the previous month. On a month-on-month basis, the WPI was 0.07% higher, with primary articles rising 0.22% and the Food Index up 0.17%.

In February, 8 of 10 primary food articles recorded a higher price rise than in January, with five items recording double-digit inflation, including vegetables (19.8%), onion (29.22%), pulses (18.5%) and paddy (10.25%). Tomato prices surged 60.5% while Potato prices recorded a 15.3% spurt, after breaking a 12-month streak of deflation.

In an article on the 'State of Economy' in March Bulletin published on Tuesday, the RBI said: "Even as inflation is on the ebb with broad-based softening of core inflation, the repetitive incidence of short amplitude food price pressures deters a swifter fall in headline inflation towards the target of 4 per cent." The article was written by a team lead by RBI Deputy Governor Michael Debabrata Patra.

Last week after the inflation numbers were shared, experts said that a higher food inflation number could keep overall inflation from declining significantly.

Madan Sabnavis, chief economist, Bank of Baroda, said: “Inflation is purely a food inflation-driven phenomenon, which will continue to pressurise inflation in the coming months.” 

“…three successive quarters of 8% plus GDP expansion, and the CPI print of 5.1% for February 2024, suggest status quo on the rates and stance in April 2024,” said Aditi Nayar, chief economist, Icra.

The next Monetary Policy Committee metting scheduled for April 3-5. Experts have already said that the RBI might hold the policy rate at 6.5% for the seventh consecutive time at the meeting.

In India, real GDP growth was at a six-quarter high in the third quarter of financial year 2023-24, powered by strong momentum, robust indirect taxes, and lower subsidies.
The high visibility of structural demand and healthier corporate and bank balance sheets will likely be the galvanising forces for growth going forward, the article said.