RBI raises inflation projection amidst concerns over price of meat, eggs, vegetables, pulses, and spices

Meat, fish, eggs, vegetables, pulses, and spices stand out as six essential food items that are consistently exerting upward pressure on the Consumer Price Index (CPI) or retail inflation in the last 3-4 months.

While much attention has been focused on the fluctuating prices of vegetables or tomatoes, the recent months have witnessed a significant surge in the prices of spices, closely followed by pulses. Over the past year, there has been a sustained upward trajectory in the prices of meat, fish, and eggs as well.

These food items have a weightage of over 15 per cent in the inflation basket. In fact, the entire food basket has a 45 per cent weightage in the CPI index.

These elevated price levels are significantly influencing the Reserve Bank of India's (RBI) calculation of inflation projections for the current year. In its monetary policy today, the  RBI has made revisions to its June inflation projection, adjusting it from 5.1 per cent to 5.4 per cent for the fiscal year 2023-24.

The updated figures now indicate an inflation rate of 6.2 per cent (5.2 per cent projected earlier) for the second quarter, 5.7 per cent (5.4 per cent ) for the third quarter, and 5.2 percent is retained for the fourth quarter as earlier. “Headline inflation projection for second quarter of current year has been revised up substantially, primarily due to the price shock from vegetables,” noted RBI Governor Shaktikanta Das.

The Governor also reiterated that the RBI need to remain firmly focused on aligning inflation to the target of 4.0 per cent.

With the upcoming year being an election year with state elections, the RBI needs to exercise additional caution concerning the rise in money supply within the economy, argue experts.

This concern is compounded by an extensive capital expenditure plan of Rs 10 lakh crore for the fiscal year 2023-24. Moreover, around six states are set to undergo elections by June next year, which will also coincide with a general election. The likely election expenditure is likely to put pressure in the prices.

The recently declared inflation print for June was at 4.49 per cent, up from 4.25 per cent in May. “The month of July has witnessed accentuation of food inflation, primarily on account of vegetables. The spike in tomato prices and further increase in prices of cereals and pulses have contributed to this. Consequently, a substantial increase in headline inflation would occur in the near-term,” said Das.