Mint explainer: Why did RBI revise inflation forecast higher in August policy?

livemint.com:

Reserve Bank if India (RBI) revise inflation forecast? Headline inflation projection for Q2 of 2023-24 has been revised higher substantially, primarily due to the price shock from vegetables. Since the last policy in June, inflationary pressures have increased, with headline Consumer Price Index (CPI)-based inflation rising from 4.3% in May to 4.8% in June. Economists are expecting vegetables prices to push headline CPI inflation to above 6% year-on-year (YoY) in July.

While the central bank believes that vegetable price increases tend to be transitory and the recent rise could reverse sharply in the coming months, it is accounting for inflation risks from cereals, pulses, and global commodity price increases. RBI surveys also showed that manufacturing, services and infrastructure firms are expecting output prices to harden, even as inputs costs ease. Economists are expecting the RBI to be on a prolonged pause till the first quarter of 2025 when it is expected to cut rates.

Until then, they expect the central bank to keep a close watch on the evolving inflation scenario. RBI governor Shaktikanta Das has reiterated that the central bank remains "“firmly focused on aligning inflation to the target of 4%". He also said that RBI will look through “idiosyncratic shocks" on food inflation, but “if such idiosyncrasies show signs of persistence, we have to act".

This is because the RBI is expecting a correction in vegetable prices with fresh market arrivals and is also seeing improvement in the progress of monsoon and kharif sowing. The fact that it has kept Q4FY24 CPI inflation unchanged at 5.2% is an indicator that it expects price shocks to subside. RBI revised FY24 inflation forecast lower from 5.3% to 5.2% in it April