Stagflation risk in India remains low despite recent surge in prices, says RBI bulletin

economictimes.indiatimes.com:

stagflation, a combination of economic stagnation with high inflation remains low in India despite a surge in prices, the Reserve Bank of India said in its August bulletin on Thursday. «Stagflation risk remains low for India with a probability of only 3% with easing of financial conditions, stability of the INR/USD exchange rate and steady domestic fuel prices,» a study conducted by the central bank showed. The uptick in June inflation mutated in July with the unprecedented shock to tomato prices spilling over to prices of other vegetables, said the RBI in its State of the Economy article. Earlier, on August 14, rising food prices sent consumer inflation soaring to a 15-month high of 7.44% in July compared with 4.87% in the previous month, breaching the upper tolerance band of RBI’s inflation target of 2-6% for the first time in FY24 and dashing any hopes of an early rate cut. High-frequency food price data for August so far shows prices of cereals and pulses continued to increase this month, according to the bulletin. Tomato prices, on average, registered a further increase, although more recent data indicates some pullback in prices, the RBI added.

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Onion and potato prices also registered sequential upticks, it said. «While core inflation witnessed a moderation (in July), headline inflation is expected to average well above 6% in the second quarter,» RBI wrote. In its meeting last week, the Monetary