Despite retail inflation in February meeting expectations at 5.09%, the surge in vegetable prices, particularly driven by soaring onion prices, has led to a substantial increase in food inflation, reaching 8.66%. Analysts now predict that the Reserve Bank of India (RBI), which has been focused on achieving a 4% inflation target, will likely maintain the current policy stance in the upcoming credit policy meeting.”
Rajni Sinha, Chief Economist at CareEdge Ratings, stated, ‘With an anticipated average inflation rate of 4.8% in FY25, and considering the RBI Governor’s consistent emphasis on achieving a 4% inflation target, we expect the policy rates to remain unchanged in the forthcoming meeting, with no change in stance.’
Contrary to market expectations, the Reserve Bank of India (RBI) has upheld its ‘withdrawal of accommodation’ stance in the latest policy meeting held in February. This policy, aimed at further curbing inflation, involves reducing the supply of easy money in the system, a measure initially implemented during the onset of the COVID-19 pandemic. RBI Governor Shaktikanta Das has previously highlighted the risk of food inflation spilling over into broader inflation.
“We maintain our perspective that the RBI will adopt a cautious approach due to the volatile trajectory of food inflation, thereby opting to maintain the status quo on rates until the August policy meeting. However, with the RBI consistently fine-tuning liquidity and aligning overnight rates closer to the repo rate, we anticipate a potential shift in stance during the June policy meeting,” stated Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank.
Akhil Mittal, Senior Fund Manager-Fixed Income at Tata Asset Management, shares a similar sentiment, stating, ‘We expect the regulator to maintain a cautious stance. We believe the RBI will prioritize stability and adhere to the 4% inflation target, thus ruling out any premature easing measures.’
In February, vegetable inflation surged to 30.3%, contributing to an overall increase in food inflation. Experts anticipate that the persistently high prices of onions will continue to keep food inflation elevated. Additionally, inflation rates in pulses, spices, and eggs also reached double digits. However, the inflation in edible oils and fats has somewhat mitigated, showing negative growth. Given that the food basket carries nearly 50% weightage in the consumer price inflation (CPI) data, this trend is concerning.”
Madan Sabnavis, Chief Economist at Bank of Baroda, notes, ‘Inflation remains primarily driven by food prices, which are expected to sustain pressure on inflation in the coming months. Furthermore, this year’s horticulture output is anticipated to be lower than the previous year, exacerbating concerns. Cereals, eggs, sugar, spices, and pulses are among the major areas of concern.’
The outlook for food prices remains bleak, with lower reservoir levels impacting agricultural output. Sinha emphasizes the significance of the forthcoming monsoon in FY25 in shaping the trajectory of food inflation, given the persistent high inflation in specific food categories.
While core inflation has remained soft, staying below the 4% threshold for three consecutive months, rural inflation stands higher at 5.3%, compared to urban inflation at 4.8%, largely due to the higher weightage of food products in the former index.
In terms of regional variations, twelve out of India’s 22 states recorded inflation rates above 5.1%. Odisha registered the highest inflation at 7.6%, while Delhi reported the lowest at 5.3%.
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