The recent price spike of certain food items is expected to be “transitory” and food inflation is expected to moderate in the coming months, but global uncertainty and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance by the government and the Reserve Bank of India (RBI), the Finance Ministry said on Tuesday. In its monthly economic review for July, the ministry said that the government has already taken pre-emptive measures to restrain food inflation which, along with the arrival of fresh stock, is likely to subside price pressure in the market soon. The ministry said tomato prices are likely to decline with the arrival of fresh stocks by the end of August or early September. Also, enhanced imports of tur dal are expected to moderate pulses inflation, it said. Retail inflation based on the Consumer Price Index (Combined) surged to a 15-month high of 7.44 per cent in July 2023, primarily due to higher prices of vegetables, cereals, pulses, and milk and products. Core inflation — non-food, non-fuel segment of inflation — was at a 39-month low of 4.9 per cent. “Though food inflation in July is perhaps the third highest since the new CPI series began in 2014, only 48 per cent of food items have inflation of above 6 per cent, and this includes 14 food items with inflation in double digits,” it said. Russia's decision to terminate the Black Sea Grain deal, along with dry conditions in major wheat-growing areas, caused the price spike in cereals. While domestic factors like white fly disease and uneven monsoon distribution exerted pressure on vegetable prices in India, it added. Capital expenditure measures taken by Centre have led to states also increasing their capex spending, with states’ capex rising by 74.3 per cent year-on-year in Q1 FY24 and Centre’s capex increasing by 59.1 per cent in the same quarter. “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 the green shoots of a private capex upcycle,” it said. Going forward, while domestic consumption and investment demand are expected to continue driving growth, it said. It further said the government has been making various attempts to raise investment by the private sector. Going forward, the PLI and new-age sectors (such as green hydrogen, semiconductors, wearables and solar modules) are expected to account for nearly 17 per cent of the capex between FY13 and FY27, it said. "The healthy balance sheet of the private sector, with increased capex by the government, is anticipated to increase the opportunities for the private sector to participate in myriad infrastructure initiatives. The capacity utilisation in the manufacturing sector is now above its long-run average, signalling the need for additional capacity creation as demand sustains the domestic economy," it added.
