Inflation, if allowed to run unchecked, can undermine the prospects of the real economy, especially industry and exports, cautioned an article in RBI’s latest monthly bulletin.
Inflation, if allowed to run unchecked, can undermine the prospects of the real economy, especially industry and exports, cautioned an article in RBI’s latest monthly bulletin.
The October CPI inflation reading (at 6.2 per cent) turned out to be a sticker shock after the wake-up call of September’s spike, reinforcing the RBI’s warnings on complacency due to sub-target outcomes for July and August, per the article “State of the Economy” put together by central bank officials.
Core inflation surging
“What is worrying is that apart from the sharp surge in the momentum of food prices, core inflation has edged up. There are early signs of second order effects or spill overs of high primary food prices – following the surge in prices of edible oils, inflation in respect of processed food prices is starting to see an uptick.
“The pick-up in price rises of household services like those of domestic helps/cooks also reflects higher cost of living pressures due to elevated food prices beginning to transmit to these specific wages,” the officials said.
In this environment, the hardening of input costs across goods and services and their flow into selling prices needs to be watched carefully, they added.
Urban consumption demand
“Inflation is already biting into urban consumption demand and corporates’ earnings and capex. If allowed to run unchecked, it can undermine the prospects of the real economy, especially industry and exports,” the authors added .
In the last MPC meeting, Governor Shaktikanta Das said: “At this stage of the economic cycle, having come so far, we cannot risk another bout of inflation. The best approach now would be to remain flexible and wait for more evidence of inflation aligning durably with the target. Monetary policy can support sustainable growth only by maintaining price stability.”
Economy exhibiting resilience
The officials noted that the Indian economy is exhibiting resilience, underpinned by festival-related consumption, and a recovering agriculture sector.
“In India, the slack in speed observed in the second quarter of 2024-25 is behind us as private consumption is back to being the driver of domestic demand with festival spending lighting up real activity in Q3 (October-December).
“The medium-term outlook remains bullish as the innate strength of the macro-fundamentals reasserts itself,” the officials said.
