According to a Reuters poll, retail inflation in India may have fallen to 5.50 percent in the previous month, falling below the Reserve Bank of India’s (RBI) acceptable range. This is most likely due to a slowing in the growth of food prices and government subsidies to offset the rise in crude oil expenses, according to the report.
Reuters conducted a poll of 66 economists from 3-9 October and found that the majority expect inflation to fall, as measured by the annual change in the consumer price index (CPI).
Inflation is expected to fall to 5.50 percent in September, down from 6.83 percent in August. Projections ranged from 5.10 percent to 6.90 percent. Furthermore, more than three-quarters of participants expect inflation to fall below the central bank’s goal range.
RBI Governor Shaktikanta Das said at the previous Monetary Policy Committee (MPC) meeting announcement on October 6 that the central bank has maintained its existing monetary policy for the fourth consecutive meeting.
The RBI said that interest rates will remain high until inflation reaches 4%, the middle of the central bank’s goal range of 2-6 percent.
Notably, rises in food prices, which account for over half of the CPI, are steadily declining after the government introduced supply-side policies.
Analysts speak out
According to Dhiraj Nim, an economist at ANZ Research, the effect of vegetable prices is “diminishing” since their prices, notably tomatoes, “have significantly corrected.” However, he said, “The persistent issue in food inflation remains with cereals, pulses, and spices, and it seems that the RBI may have limited influence on this matter.”
Furthermore, the rise in crude oil prices is projected to add to long-term inflation. India is the world’s third-largest importer of oil. Oil prices jumped by almost 3% on Monday, reaching roughly $90 per barrel.
“Expectations are that oil prices will remain high for the rest of the year due to global supply concerns,” said Alexandra Hermann of Oxford Economics.
Expectations are moderate.
Another Reuters poll found that inflation is anticipated to remain over 4% until at least the second quarter of 2025. The estimate forecasts a 5.5 percent average for the current fiscal year and a 4.8 percent average for the next fiscal year.
Economists believe the RBI will cut interest rates in the second quarter of 2024.