Food price pressure hindering 4% inflation target: RBI

Ira Singh
Khabar Khabaron Ki,20 Mar’24

The Reserve Bank of India (RBI) in its monthly bulletin released on Tuesday,highlighted the persistent challenge posed by food price pressures, which are impeding efforts to achieve the 4% inflation target.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,” stated report.

The headline retail inflation in India has been above the RBI’s Monetary Policy Committee (MPC) medium-term target of 4% for more than four years. Consumer Price Index (CPI) based inflation stood at 5.09% in February. Food inflation jumped to 8.66% in February from 8.3% in January. However, core inflation or inflation excluding food and fuel prices, eased to 3.5% in February from 3.7% in the previous month,according to recent updates.

The softening of core inflation has been broad- based. Fuel prices remain in deflation and this may get pronounced in March due to the reduction in price of liquified petroleum gas (LPG). “Overall, headline inflation’s momentum turned positive in February 2024, 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 the report added.

On economic expansion, the RBI noted that 8% annual gross domestic product (GDP) growth can be sustained. “The Indian economy is experiencing a conducive macroeconomic configuration that can be its launching pad for a step-up in its growth trajectory. Over the period 2021-24, growth has averaged above 8%; and the underlying fundamentals indicate that this can be sustained and even built upon,” it stated.

Citing consumption expenditure data, the RBI noted that there are significant per capita income shifts underway. The biggest segment of aggregate demand – private final consumption expenditure – remained low, despite the third quarter coinciding with the festival season. Moreover, government final consumption contracted during the quarter,” report stated.