Food price volatility remains a contingent risk: RBI bulletin article

Headline inflation, as measured by year-on-year (y-o-y) changes in the all-India CPI, edged up to 3.7 per cent in August 2024 from 3.6 per cent in July 2024.

The RBI has been targeting to keep inflation at 4 per cent on a durable basis. (File photo)

Although consumer price index (CPI) inflation has remained below the 4 per cent target in July and August, volatility in food prices continue to pose risk, a Reserve Bank of India’s (RBI) article said.

Headline inflation, as measured by year-on-year (y-o-y) changes in the all-India CPI, edged up to 3.7 per cent in August 2024 from 3.6 per cent in July 2024. The RBI has been targeting to keep inflation at 4 per cent on a durable basis.

“Consumer price index (CPI) inflation came in below the Reserve Bank’s target for the second consecutive month in August, although in light of the recent experience, food price volatility remains a contingent risk,” the ‘State of the Economy’ article published in the RBI’s September bulletin said.

Story continues below this ad

The article has been prepared by the RBI’s Deputy Governor Michael Patra and other central bank officials. The RBI said the views published in the article are of the authors and not of the institution.

The marginal increase in inflation in August came entirely from an unfavourable base effect of around 5 bps (basis points) while the index remained unchanged at the previous month’s level (zero momentum). A basis point is one hundredth of one percentage point.

Both CPI fuel and CPI core (i.e., CPI excluding food and fuel) groups recorded positive momentum of 34 bps and 27 bps, respectively, while the CPI food group recorded a negative momentum of 30 bps in August.

Headline inflation, as measured by y-o-y changes in the all-India CPI13, edged up to 3.7 per cent in August 2024 from 3.6 per cent in July 2024. The marginal increase in inflation came entirely from an unfavourable base effect of around 5 bps while the index remained unchanged at the previous month’s level (zero momentum). Both CPI fuel and CPI core (i.e., CPI excluding food and fuel) groups recorded positive momentum of 34 bps and 27 bps, respectively, while the CPI food group recorded a negative momentum of 30 bps.

Story continues below this ad

Food inflation (y-o-y) firmed to 5.3 per cent in August from 5.1 per cent in July.

The article said the global economic activity was slowing down while the pace of disinflation remains sluggish, provoking caution among monetary policy authorities.

In India, domestic drivers – private consumption and gross fixed investment – were robust and net exports remained sequentially positive in their support to gross domestic product (GDP) growth in Q1 of 2024-25, it said. The country’s GDP growth slipped to a five-quarter low of 6.7 per cent in April-June 2024-25 due to slower growth in agriculture, government spending and services.

”Household consumption is poised to grow faster in Q2 (July-September) as headline inflation eases, with a revival of rural demand already taking hold,” the article said. The demand for fast moving consumer goods (FMCG) is also accelerating as companies target older customers with healthy lifestyle products in response to rising longevity and affluence and younger ones with premiumisation.

Story continues below this ad

Yet another consumption booster is the ramping up of hiring by e-commerce majors ahead of the festival season, not just in the metros but in tier 2 and 3 cities as well, the article said.