Vegetable price inflation set to decline from September
The Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said that price stability is essential for maintaining the economic growth of the country.
“Price stability has to be the basis of sustainable growth. Without price stability, any growth which you try to achieve in the short term will only have a short life,” said Das.
He added that the RBI’’s macroeconomic and monetary policy has focused on maintaining price stability, ensuring adequate flow of credit to sustain the growth momentum, and securing financial stability.
Speaking at the 29th Lalit Doshi Memorial Lecture on ‘Building Blocks for a Sustainable Future: Some Reflection, Das said that vegetable prices will start moderating “appreciably” from September onwards. He also said that it is necessary to be watchful of any potential risks to price stability and act appropriately on time.
Food price shocks have led to India’s July headline inflation, as measured by the consumer price index (CPI), to surge to a 15-month high of 7.44%. Governor Das said prices of vegetables surged by 37.3% year-on-year YoY, led by an increase of 201.5% in tomato prices. Reflecting these drivers, food group inflation more than doubled from 4.7% in June to 10.6% in July.
On the positive side, however, core inflation softened by around 130 basis points (bps) from its recent peak in January 2023, although it is still elevated at 4.9%, Das said, indicating the ongoing transmission of monetary policy rate actions.
“Looking ahead, the spike in vegetable prices in July is starting to see a correction, led by tomato prices. New arrivals of tomatoes in mandis are already softening prices, coupled with proactive supply management in the case of onions,” Governor Das said.
Meanwhile, the prospects for Kharif crops have improved owing to the progress of the monsoon in July, although the cumulative rainfall has again moved into the deficit territory. Further, the outlook for cereal prices has also “brightened”, supported by active supply side interventions. However, sudden weather events such as El Nino and renewed geopolitical tensions impart uncertainty to the food prices outlook.
“Given the likely short-term nature of the vegetable price shocks, monetary policy can await the dissipation of the first-round effects of such shocks that may produce short-lived spikes in headline inflation,” Das said, that adding that the RBI will remain on guard to ensure that second order effects in the form of generalisation and persistence of inflation are not allowed to take hold.
Further, the role of continued and timely supply side interventions assumes criticality in limiting the severity and duration of such sudden food price shocks. “Under such circumstances, it is necessary to be watchful of any risk to price stability and act appropriately and in time. We remain firmly focused on aligning inflation to the target of 4%,” he said.
The Governor also stressed that the regulator has made a “conscious effort” to improve the systemic resilience and efficiency by maintaining external stability and building forex reserves of nearly $600 billion. These reforms seek to remove market segmentation, facilitate greater access including non-residents, widen the participation base, promote innovation, and ensure customer protection, he said.
Measures have also been taken to implement a “state-of-the-art” market infrastructure, pilot launch of central bank digital currency (CBDC) and internationalisation of the rupee. “The COVID crisis was converted into an opportunity by harnessing the best benefits of digitalisation,” Das said.
Lastly, Governor Das said certain sectors such as agriculture, manufacturing, services, technology, innovation and startups can provide significant growth opportunities for India in the next 25 years and that the country’s demography enables it to support the growth.
Source:financialexpress.com