RBI Flags Persistent Food Inflation as Major Concern

The Reserve Bank of India (RBI) highlighted the enduring nature of food price shocks, suggesting they can no longer be deemed transitory. Spiking food prices have continued to pressure retail inflation, which hit 8.36% in June. RBI remains committed to bringing inflation back to the target of 4%.

The Reserve Bank of India (RBI) has expressed concern over the persistent nature of food price shocks, stating that the time span is too lengthy for these shocks to be considered temporary. In its July bulletin, the central bank argued that the past year's food price rises have taken an enduring toll on inflation.

The bulletin notes sporadic spikes across various vegetables, attributing the ongoing rise in food prices to the broader category of vegetables inflation. June's food inflation rate reached 8.36%, nearly double the 4.63% recorded the previous year, alarming both consumers and policymakers.

Government data revealed a month-on-month rise in retail inflation for all food segments, including cereals, meats, milk, and vegetables. Overall retail inflation also increased in June, contrasting with recent months of moderation. The annual inflation rate was reported at 5.08% for June 2024.

Food prices remain a significant challenge for Indian policymakers aiming to stabilize retail inflation at 4%. Despite global inflation concerns, India managed to moderate inflation rates, with eased month-on-month figures, except for June. However, food prices have disrupted this progress.

Since May 2022, the RBI's series of repo rate hikes have totaled 250 basis points in an effort to reduce inflation by suppressing demand. The central bank's pause on rate hikes aims to monitor progress, with the next monetary policy meeting scheduled for early August.

RBI's bulletin acknowledged gains in retail inflation remaining within the tolerance band since September 2023. However, it cautioned that the disinflation process has been uneven, with headline inflation hovering closer to 5% despite low core inflation and deflated fuel prices.

The RBI stressed its commitment to achieving the 4% inflation target, labeling the recent halts in inflation decline as ongoing work. The central bank will continue efforts to align inflation durably to the target.

(With inputs from agencies.)