In its Monetary Policy Committee announcement on Thursday (August 8), the Reserve Bank of India (RBI) reaffirmed its FY25 inflation projection of 4.5 percent, stating that the strong food price momentum is expected to continue through July.
However, the RBI revised its Q2 FY25 CPI inflation forecast to 4.4%, up from 3.8% previously. The Q3 FY25 prediction has been changed slightly to 4.7% from 4.6%, and the Q4 FY25 forecast has been reduced to 4.3% from 4.5%. In Q1 FY26, CPI inflation is predicted to be 4.4%.
RBI Governor Shaktikanta Das stated that headline inflation reached 5.1% in June 2024, owing to unanticipated events. While fuel costs stayed deflationary for the tenth consecutive month, food inflation increased. Core inflation fell to a historic low in May and June.
With food inflation accounting for more than 75% of headline inflation in May and June and comprising over 46% of the CPI basket, vegetable prices alone accounted for roughly 35% of June's inflation. Das emphasized the continued inflationary pressures on other main food categories.
He emphasized the need of addressing inflation control and price stability in order to promote growth. Despite India's solid development, inflation continues to fall, with core inflation reaching historic lows in May and June.
The RBI targets 4% inflation with a tolerance range of 2 percentage points. Retail inflation last approached this target in January 2021, at 4.06%. Nonetheless, food costs continue to be a major problem, fueling the latest spike in retail inflation, which jumped to 5.08 percent in June from 4.75 percent in May.
Das acknowledged that food inflation, which accounts for 46% of headline inflation, cannot be dismissed. "The MPC cannot afford to ignore persistently high food inflation as it may have spillover effects," he said.
