Since the last Monetary Policy Committee meeting in June, facts have changed thick and fast. Do the economists on the MPC take a leaf out of Keynes or latch on to central bankers' catchphrase during uncertain times — 'data dependent'? Actual inflation and growth — the most monitored macroeconomic indicators — have been testing the limits of forecasting models not only of the central banks' but even the presumably more sophisticated investment banks. Throw in financial stability and it gets muddier.
When the Reserve Bank of India's MPC which is mandated to target Consumer Price Inflation at 4% with a provision to move two percentage points on either side meets this week, it would face a few puzzles that may not have instant solutions. After the breach last year and a note explaining to the government why it failed, the MPC was sitting pretty with easing inflation. All that appears to be turning with the ubiquitous tomatoes in the headline for turning scarce.
Economists are raising inflation forecast after the June CPI reading came in at 4.8% against the consensus estimate of 4.6%. In July it could climb to 6.7% and the September quarter average could be 5.8%, up from 4.8% earlier, said the Deutsche Bank. While the headline numbers are ringing alarm bells, a peep below the surface may present a different picture.
With farm products forming a substantial chunk of the CPI, seasonal factors may be at play. A 12.5% month on month jump in vegetable index was a significant factor in pushing up inflation, especially tomatoes which have risen fivefold in some markets. Tomatoes have turned bitter gourds.
Read more on economictimes.indiatimes.com