According to a Reuters poll of 55 economists conducted from July 3-10, consumer price index inflation in India is expected to have risen at an annual pace of 4.58% in June. This rate is slightly faster than the 4.25% recorded in May.
Food Price Spike Reverses Four-Month Decline in Inflation
Inflation in India is likely to have snapped a four-month decline in June due to a spike in food prices. Uneven monsoon rains have damaged crops of some perishable foods and hindered the movement of goods, resulting in shortages of basic ingredients for Indian cooking such as tomatoes, chillies, and onions. The pressure on food prices is expected to persist in the coming months, making it less likely that inflation will return to the Reserve Bank of India’s (RBI) target of 4% in the near term.
RBI Expected to Resist Rate Hike Pressure
Reuters also reported that the Reserve Bank of India (RBI) is expected to resist pressure to raise interest rates despite the rise in inflation. Alexandra Hermann, senior economist at Oxford Economics, stated that the RBI will likely tolerate a supply-side-driven increase in food inflation as long as core price pressures continue to remain within the bank’s tolerance band.
Forecasted Inflation for the Fiscal Year
The economists polled projected that inflation in Asia’s third-largest economy will average 5.0% in the fiscal year ending on March 31, 2024, and the following year.
Impact on Monetary Policy
The increase in inflation, particularly driven by higher food prices, makes a cut in interest rates unlikely in the near future. The RBI is expected to monitor the situation and focus on maintaining price stability while considering the impact of inflation on the overall economy.
The latest economists’ poll suggests that inflation in India rose to 4.58% in June, driven by higher food prices. The pressure on food prices is expected to persist, making it less likely for inflation to return to the RBI’s target in the near term. The central bank is anticipated to resist pressure for a rate hike and instead focus on managing inflation within its tolerance band.
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