- Economy
- 2 min read
Inflation is hurting consumption, strong likelihood that it may hold back India's growth: RBI
In its December policy meeting, the Reserve Bank of India's Monetary Policy Committee (MPC) left its inflation forecast for this fiscal year unchanged at 5.4 per cent, despite food price rise concerns, uncertainty around crude costs even amidst a recent slump and chances of domestic growth momentum creating demand pressure on inflation.The Reserve Bank of India (RBI), in its December bulletin, highlighted a concerning trend, stating that the real-time inflation is adversely impacting discretionary consumer spending. This, in turn, is impeding the overall growth of manufacturing companies, including their capital expenditure, it said.
The RBI's observation underscores the immediate and tangible effects of inflation on the economy, particularly in the context of consumer behavior and corporate performance. The central bank emphasized that unless inflation is promptly brought back to the target and effectively controlled, there is a substantial risk of stalling economic growth.
"In India, the broad based strengthening of economic activity that is underway will likely be sustained by easing input costs and corporate profitability," it said.
Consumer Price Index (CPI) based inflation rose to 5.6 per cent in November as the recurrence of food price spikes punctured a brief respite in September and October.
"... but it is expected to ease to 4.6 per cent in the first three quarters of 2024-25," said the article authored by a team led by RBI Deputy Governor Michael Debabrata Patra.
It further said domestic financial markets have been lifted by the abiding strength of the real economy.
The link between inflation, consumer spending, and manufacturing growth is a critical dynamic that the RBI is closely monitoring.
In its December policy meeting, the central bank left its inflation forecast for this fiscal year unchanged at 5.4 per cent, despite food price rise concerns, uncertainty around crude costs even amidst a recent slump and chances of domestic growth momentum creating demand pressure on inflation.
While core inflation shows a downward trend, the persisting concern revolves around food inflation. Rising prices of essential commodities like onions and tomatoes may keep the headline Consumer Price Index (CPI) elevated in the coming months. Additionally, lower reservoir levels pose a potential challenge to Rabi output next year, economist Sujan Hajra, had stated.
India's retail inflation, however, exhibited a positive trend, easing to a four-month low of 4.87 per cent in October, primarily attributed to the cooling prices of food items.
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