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Even as inflation is on the ebb with broad-based softening of core inflation, the repetitive incidence of short amplitude food price pressures has deterred a swifter fall in headline inflation towards the target of 4%, Reserve Bank of India (RBI) officials led by Deputy Governor Michael D. Patra wrote in an article in the March issue of the RBI Bulletin that was released on Tuesday.
“Inflation is on the ebb; the steady decline in core inflation would have taken down headline inflation towards the target of 4% even sooner and faster, but for the repetitive incidence of short amplitude food price pressures,” they wrote in the article on the ‘State of the Economy’.
Observing that the CPI readings for January and February 2024 showed that the winter easing of vegetable prices turned out to be shallow and short-lived, they stated that cereal prices had maintained strong momentum, while prices of meat and fish had registered an upsurge.
“Food price pressures on the headline have been capped by core disinflation to among its lowest prints in the series. The softening of core inflation has been broad-based,” they wrote.
According to the RBI officials high frequency food price data for March so far (up to the 15th) showed that cereal prices had declined, mainly for wheat. While prices of pulses had registered a broad-based increase, edible oil prices had continued to soften.
“Amongst key vegetables, tomato prices have corrected in March so far while onion and potato prices recorded an upsurge after softening over the past three months,” they observed.
Fuel price deflation was also likely to get pronounced in March due to the government’s reduction in the price of liquified petroleum gas (LPG), they noted, adding that headline inflation’s overall momentum had turned positive in February... offsetting a favourable base effect.
“Accordingly, monetary policy has to remain in a risk minimisation mode, guiding inflation towards the target while sustaining the momentum of growth,” they stressed.
