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Inflation may stay elevated in coming months: FinMin

By Ruchika Chitravanshi
August 23, 2023 14:56 IST
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The finance ministry has cautioned that global and regional uncertainties and domestic disruptions may keep inflationary pressures elevated in the coming months, warranting “greater vigilance” by the government and the Reserve Bank of India (RBI).


Photograph: Shailesh Andrade/Reuters

“Russia’s decision to terminate the Black Sea grain deal, along with dry conditions in major wheat-growing areas, caused a price spike in cereals.

"Domestic factors like white fly disease and an uneven distribution of monsoon exerted pressure on vegetable prices in India,” the ministry said in its latest Monthly Economic Report for July, released on Tuesday.


However, the report maintained, the recent price surge in certain food items “is expected to be transitory”.

“Tomato prices are likely to decline with the arrival of fresh stocks by the end of August or early September.

"Further, enhanced imports of tur dal are expected to moderate pulses inflation.

"These factors, along with the recent government efforts, can soon lead to a moderation in food inflation in the coming months,” it said.

Retail inflation galloped to a 15-month high of 7.44 per cent in July, mainly due to skyrocketing prices of vegetables, pulses, cereals, and spices.

In its latest monetary policy review, the RBI revised upwards its inflation forecasts -- to 6.2 per cent for the September quarter and 5.4 per cent for FY24 -- while keeping the policy rate unchanged at 6.5 per cent.

RBI Governor Shaktikanta Das in a statement had said that while a substantial increase in headline inflation would occur in the near term, led by the accentuated vegetable prices, “monetary policy can look through high inflation prints caused by such shocks for some time”.

The finance ministry report noted that maintenance of macroeconomic stability was paramount to keep interest rates from rising too much, to underscore the relative attractiveness of India as a zone of performance and promise for domestic and international investors and to maintain steady economic growth.

July’s monthly review also highlighted that the robustness of domestic investment was the result of the government’s continued emphasis on capital expenditure.

“Enhanced provision for capital expenditure by the government is now leading to crowding in of private investment, as evident in the performance of various high-frequency indicators and industry reports, which highlight the emergence of green shoots of a private capex upcycle,” it added.

The Union government in its FY24 Budget increased the capital outlay by 33.3 per cent, raising the share of capital expenditure in total expenditure from 12.3 per cent in FY18 to 22.4 per cent in FY24 Budget estimates.

The monthly report also said the external sector required a closer watch to strengthen merchandise export growth in the face of slowing global demand.

It said persistent geopolitical concerns continued to shadow the world trade growth, which is expected to decline to 2 per cent in 2023 from 5.2 per cent in 2022.

“Services exports continue to do well and are likely to continue doing so as the preference for remote working remains unabated, typically manifested in the proliferation of global capability centres,” it said.

The report said domestic consumption and investment demand might continue to drive growth.

“Going forward, increased minimum support prices and prospects of healthy kharif crops will further add strength to the rural demand,” it added.

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Ruchika Chitravanshi
Source: source

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