Food Inflation Pressures Indian Economy, Monsoon Crucial for Relief

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India's food inflation rose to a four-month high of 8.7% in April 2024, impacting citizens, especially in rural areas (8.75% inflation). Soaring prices of vegetables and fruits are a major concern, attributed to climate-related factors causing supply shortages.

The Reserve Bank of India (RBI) Governor, Shaktikanta Das, warned that the hot summer and low reservoir levels could further stress summer produce. He emphasized monitoring the rabi arrivals of pulses and vegetables.




Global food price trends and rising industrial metal costs could worsen the situation.

Food Inflation Offsets Lower Fuel Inflation

Overall consumer price index (CPI) inflation fell to a low of 4.83% in April, but food inflation remains a significant driver. Key food categories experiencing high inflation include:

Vegetables: +28% YoY
Pulses: +17% YoY
Cereals: +8.6% YoY
Meat and Fish: +8.2% YoY
Spices: +7.8% YoY
Eggs: +7.1% YoY

Fuel inflation, however, remained negative for the eighth month in a row, at -4.2% YoY, due to LPG price cuts. State-owned oil companies are likely to hold petrol and diesel prices in the first quarter.

Monsoon Key for Relief

A normal monsoon is expected to benefit the kharif season. While wheat procurement has surpassed last year's level, and buffer stocks are healthy, uncertainties remain. The RBI projects CPI inflation for 2024-25 at 4.5%, with risks evenly balanced.

Economists believe food inflation will climb further in the summer but may see a temporary dip in July-August due to a favorable base effect from high inflation last year. The monsoon's performance after August will be crucial.

Rate Decision and Outlook

The RBI kept the benchmark repo rate unchanged at 6.5% and maintained its withdrawal of accommodation stance. It raised the GDP growth forecast for FY25 to 7.2%.

If food inflation eases and there are no further weather shocks, the RBI may consider lowering interest rates later in 2024. A normal monsoon is critical for controlling food prices and bringing inflation under control.

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