Q2 inflation to average well above 6%, says RBI

livemint.com:

Mumbai: Inflation is set to average “well above" 6% in the second quarter, according to the RBI’s August bulletin published on Thursday. “The incidence of supply shocks is not over—elevation in vegetable prices has extended into the first half of August.

Accordingly, headline inflation is expected to average well above 6% in the second quarter," said a State of the Economy article in the bulletin. To be sure, the views expressed in the article do not reflect the central bank’s official stance.

The comments in the article come after the 14 August data showed headline retail inflation jumped to a 15-month high of 7.44% in July, significantly higher than economists’ expectations. RBI also raised its Q2FY24 inflation forecast by 100 basis points to 6.2%, leading to an overall revision in FY24 forecast to 5.4%.

“The vulnerability of the economy to recurring incidence of vegetable price shocks, especially ahead of and during the monsoon, warrants major reforms in perishable supply chains covering transportation networks, warehousing and storage technologies, and value addition processes that damp the amplitude of these swings," said the article. The article acknowledged that both the monetary and fiscal policy measures undertaken so far have helped in reducing the impact of prices pressures.

Households therefore expect inflation to edge down over the year, as reflected in the latest round of the consumer confidence survey. “In the absence of these policy responses, the inflation outlook would have been far more adverse The commitment to remain anti-inflationary should quell threats to macroeconomic stability and help anchor expectations," the article added.