Inflation: RBI Cautious Despite Decline in Retail Inflation Rate, Challenge to Keep Figures Stable in September

The data of decline in retail inflation in the month of August is a relief for RBI, but the central bank is serious about keeping the inflation rate low for the coming months. Because, the Consumer Price Index has increased in August compared to the month of July, which remains a cause for concern.

The Reserve Bank of India will still not ease its watch on last month’s weak inflation rate, as weather-related concerns could push prices up again. According to economists, the Consumer Price Index (CPI) grew 6.83% in August, which is slower than July’s pace and below expectations of 7.1% growth. The weak reading was due to a fall in food prices as the government imported vegetables, including tomatoes, and made them available at cheaper prices.

Radhika Rao, economist at DBS Bank Limited, said that inflation remains 4% above the RBI target. Citigroup Inc. economists Samiran Chakraborty and Bakar Murtaza Zaidi have cut their average inflation forecast for the fiscal year ending March 2024 to 5.4% from 5.7% previously. He expects inflation to come in at around 5.3% in September, within the RBI’s target range of 2%-6%. However, he said it would be premature to signal any monetary easing given the weather-related risks.

Monsoon rainfall from June to early September is about 11% below normal, making August the driest August in a century. Whereas, the Indian Meteorological Department estimates that there will be better rainfall in September. However, this rain may still disrupt the sowing and harvesting of crops.

HSBC Holdings Plc said that if prices of some food products like tomatoes and onions in the CPI basket rise, the RBI may rely on liquidity management against inflation. But with grain inflation persisting, it may be forced to consider a rate hike around December, economist Pranjul Bhandari said.

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