4% inflation aim is hindered by food prices: RBI

As food prices fluctuate, core inflation is gradually declining and bringing headline inflation closer to the 4% objective, the Reserve Bank of India (RBI) said in its monthly bulletin on Tuesday.

According to CPI data for January and February of 2024, the wintertime decrease in vegetable costs proved to be fleeting and superficial. Meat and fish costs have increased, while cereal prices have continued to rise. Core disinflation has reduced food price pressures on the headline to some of the lowest prints in the record, the study said.

Core inflation is generally declining, and the deflation of fuel costs is expected to intensify in March as a result of the LPG price reduction. In February 2024, headline inflation began to rise despite a favorable base effect. The research suggests that monetary policy should prioritize reducing risks, guiding inflation toward the goal, and bolstering the pace of expansion.

In spite of geopolitical unpredictability and catastrophic weather hazards, the Indian economy is now in a favorable macroeconomic environment that may serve as a springboard for an acceleration of its development trajectory. The RBI said that although growth has averaged above 8% from 2021 to 2024, the underlying fundamentals suggest that this can be maintained and even increased.

In addition, even as businesses are deleveraging and strengthening their ability to service debt, the current account deficit is moderate, external buffers are strong, and fiscal consolidation is in its third year. The banking sector’s balance sheets are strong and robust, giving it the means to meet the requirements of a recovering economy for productive loans. These advantageous patterns are reflected in the financial markets. Now that investor interest in India is returning, capital inflows have started up again.