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The Reserve Bank of India (RBI) has projected CPI inflation at 4.5 per cent for FY25 while warning that food price uncertainties would continue to weigh on the inflation outlook
“Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q1 at 4.9 per cent; Q2 at 3.8 per cent; Q3 at 4.6 per cent; and Q4 at 4.5 per cent,” RBI governor Shaktikanta Das said unveiling the Monetary Policy for FY2024-25.
The outlook for inflation will be contingent largely on the evolving food inflation dynamics. Rabi sowing has exceeded last year’s levels, but pulses have witnessed a decline, the RBI said.
“Going ahead, food price uncertainties would continue to weigh on the inflation outlook. An expected record rabi wheat production in 2023-24, however, will help contain cereal prices. Early indications of a normal monsoon also augur well for the kharif season. On the other hand, the increasing incidence of climate shocks remains a key upside risk to food prices. Low reservoir levels, especially in the southern states and outlook of above normal temperatures during April-June, also pose concern, the Monetary Policy statement said.
According to the second advance estimates, the production of cereals, pulses and oilseeds has trailed last year’s level. Water reservoir levels remain significantly below the level of last year and of the decadal average. Vegetable prices are undergoing seasonal correction unevenly. The continuing pass-through of monetary policy actions and stance, on the other hand, is keeping core inflation subdued, it said.
The risks to outlook
“Fuel price deflation is likely to deepen in the near term following the recent cut in LPG prices. After witnessing sustained moderation, cost push pressures faced by firms are showing upward bias. The recent firming up of international crude oil prices warrants close monitoring. Geo-political tensions and volatility in financial markets also pose risks to the inflation outlook,” Das said.
The upside risks emanate from persistent food price pressures from extreme weather-related disturbances; an escalation in geopolitical hostilities which could further aggravate supply disruptions; increased volatility in prices of key commodities, particularly crude oil; and a larger passthrough of input cost pressures to output prices as demand gains strength. The downside risks emanate from an early resolution of geopolitical conflicts; a pronounced slowdown in the global demand with further easing of global commodity prices; and an improvement in supply responses of key primary commodities.
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