“This is a positive development, especially as the index has remained flat between July and August. Some vegetable price shocks have begun to reverse, and if this continues and broadens, the persistence that characterised food inflation developments in the first quarter of 2024-25 may be behind us,” the bulletin noted.
Inflation forecasts and volatility risks
The prospects of headline inflation averaging 4.5% in the second half of FY 2024-25 have improved, as highlighted by the RBI’s Monetary Policy Committee in its August 2024 resolution. Nonetheless, “food price volatility remains a contingent risk” despite the recent improvement in inflation figures.
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India’s retail inflation, as measured by the Consumer Price Index (CPI), has stayed below the RBI’s 4% target for two consecutive months. August’s inflation rate was recorded at 3.65%, following a dip to 3.54% in July, after a surge in June when the rate exceeded 5%.
Economic growth and household consumption
The bulletin further underscored that while global economic activity is slowing, India’s domestic economy continues to benefit from strong private consumption and gross fixed investment. The article, led by RBI Deputy Governor Michael Debabrata Patra, noted that “household consumption is poised to grow faster in the second half of the fiscal as headline inflation eases, with a revival of rural demand already taking hold.”
While the agriculture sector underperformed, the manufacturing and services sectors remained buoyant, helping sustain GDP growth during the April-June quarter.