Retail inflation, which eased in August, is expected to decline sharply in September driven by corrections in vegetable prices, the Reserve Bank of India (RBI) said on Thursday.
In August, consumer price index (CPI) inflation eased to 6.83 per cent from a 15-month high of 7.44 per cent in July 2023. This moderation was on account of reversal in the prices of vegetables.
“Hearteningly, the correction is not complete, and more is expected to drive down retail inflation in its September reading. Furthermore, there are early indication of corrections in a broad range of vegetable prices going beyond the TOP (tomatoes, onions and potatoes) group,” the RBI said in the State of the Economy article, released in its monthly bulletin for September.
The article is authored by RBI Deputy Governor Michael Patra and other central bank officials. The RBI, however, said the views in the article are those of the authors and not of the institution.
Core inflation remained steady at 4.9 per cent in August. An important development for the conduct of monetary policy is the stabilizing of core inflation, which also reflects a broad-based easing of price pressures across its constituents, both goods and services, the article said.
According to the authors, a new risk to global financial stability stems from the commodity markets as crude prices ruling above $90 per barrel challenge 10-month highs due to Saudi Arabia and Russia extending voluntary production cuts to the end of 2023.
The strength of the US dollar on safe haven demand is also making crude prices higher. Global inflation is once again under siege as deep deficits in global oil balances become persistent unless global demand is hit by a sharp economic downturn, they said.
The article said the Indian economy remains an outlier amidst darkening global prospects. Supply chain pressures in the country remain below historical average levels despite a pick-up since May 2023.
It said the real GDP growth for the first quarter of 2023-24 at 7.8 per cent was the same as projected in the August edition of the State of the Economy article. The growth was led by domestic drivers – private consumption and fixed investment – which offset the negative spill from net exports.
“In the second quarter, available indicators point to a (GDP) gain in quarter-on-quarter (q-o-q) momentum on the back of domestic demand,” the authors said, adding that the economic activity index (EAI) nowcasts GDP growth for Q2 FY 2023- 24 at 6.6 per cent.
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Clothing and lifestyle retailers and shopping malls are experiencing a sharp recovery in sales across price points in the past few weeks, which has raised hopes of a pick-up in demand through the rest of the festival season that began with Raksha Bandhan and Onam, and cheers for discretionary retail spending, the article said.
The next segments to attract festival spend are electronics and autos, it said. There are also indications that rural demand for fast-moving consumer goods has swung back into positive territory after being under pressure for over a year.
Looking ahead, India’s consumer market is expected to become the world’s third largest by 2027, with household per capita spending outpacing all other developing economies in Asia, the article said.
© The Indian Express (P) Ltd
First published on: 19-09-2023 at 04:55 IST
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