Food inflation to stay sticky, rate cuts may get pushed to FY26: Economists
inflation gauge declined below the mandated 4% target for the first time in five years, with economists attributing the fall to a statistical base effect and might not indicate a durable victory against sticky prices just yet.
Most of the experts that ET spoke with said rate cuts could be pushed to the next fiscal year.
In the recently concluded monetary policy review, central bank governor Shaktikanta Das maintained that future interest rate decisions will depend on food price movements and that it cannot overlook inflation pressures.
The Reserve Bank of India (RBI) also revised its inflation projections for both this quarter and the third quarter of FY25 upward by 60 basis points and 10 basis points, respectively. One basis point is a hundredth of a percentage point.
Inflation this quarter is expected at 4.4%, and 4.7% in the third quarter.
«Latest inflation data (3.54%) is likely to be fleeting, as we expect inflation to inch up back to 5% by September 2024. We do not see any impact on monetary policy from this data. We continue to expect a rate cut in 2025 unless growth falters,» said Nikhil Gupta, chief economist, Motilal Oswal.
The key risk to the inflation trajectory stems from food inflation. Food items together carry a weight of around 46% in the Consumer Price Index (CPI) basket, contributing to more than 75% of headline inflation in May and June. Vegetable prices contributed about 35% to inflation in June. Pulses inflation was at 14.77%, and vegetables at 6.83% in July.
«There is no rush to cut the
