Economists’ take: Inflation in India to remain higher on monsoon disturbances

economictimes.indiatimes.com:

Retail inflation in June hit a three-month high at 4.81 per cent, due to soaring vegetable prices, higher than economists’ expectation of 4.3-4.6 per cent. While most economists believe the inflation rate certainly will remain sticky, it will not prompt the Reserve Bank of India (RBI) for another rate hike. Meanwhile, the Consumer Food Price Index (CFPI) surged to 4.49 per cent in June from 2.91 per cent in May. Economists broadly expected this because of late start and untimely rain in several parts of the country. Here is what economists have to say about the latest inflation reading:

With the sharp and anomalous rise in vegetable prices continuing into July, we see July inflation tracking closer to 6% levels, if the current trends persist and August may remain similarly elevated. In our view, the sharp rise in vegetable prices does not change the paradigm of a continued policy pause by the RBI. However, higher-for-longer headline inflation, in tandem with the RBI’s recent communication of stricter targeting of 4% inflation, along with continued hawkishness by the Fed, effectively restricts the RBI’s maneuverability to respond nimbly to growth headwinds. Hence, adverse movements in near-term inflation risks delaying the first cut.

Looking ahead, as the high base effect from last year fades and food prices remain under pressure, headline inflation is expected to print above 5% in July 2023. Given the emerging weather-related risks, we have revised our inflation forecast for FY24 to 5.1% (from 4.9% previously) with Q2 average at 5.3% and Q3 at 5.6%. The balance of risks is tilted to the upside for our forecasts as sowing progress is still