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Marked recovery has been witnessed in India’s retail inflation as it eased to 4.81% in June, signifying a drop from previously recorded numbers. This has provided some relief and has emerged as a challenge for the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) with regard to its decision making in the August meeting.
The primary reason for the Consumer Price Index (CPI) decline was the notable reduction in the price of food items, specifically in the area of vegetables. Furthermore, the core inflation (which excludes food and fuel) showed signs of moderation which marked a cooling trend. This decline brings optimism for policymakers who can afford a shift in their policies.
As for now, the issues are still not as simple. There are concerns about the longevity of low food prices due to the uncertainty that surrounds the pulses and cereals farming owing to the monsoon weather forecast. Changes to global commodity prices as well as other underlying inflationary pressures are also factors to keep a keen eye on.
The information poses a unique conundrum for the MPC in August. While lower inflation might trigger discussions around a more accommodative stance or cuts towards the end of the year, the RBI still has to fight the battle of maintaining price stability alongside supporting economic growth. The committee will be closely tracking upcoming data points and assessing the actual momentum of disinflation before making final decisions on policy.
