1. Estimates of retail inflation increased.
The RBI has raised its retail inflation forecast for FY 2024-25 to 4.8% from 4.5%. This is due to continued pressure on food prices and global uncertainty.
2. Food inflation will remain elevated in the third quarter.
Shaktikanta Das warned that food inflation is likely to remain high in the third quarter. This is due to supply disruptions and fluctuations in crop yields. Some relief is expected after the arrival of rabi crop in the fourth quarter.
3. Seasonal decline in vegetable prices
The good news is that vegetable prices are expected to decrease seasonally. This will give some relief to the common man in the budget.
4. Concern over rising trend in oil prices
RBI expressed concern over rising trend in edible oil prices. The recent increase in import duties and the rise in global edible oil prices may add further pressure on inflation.
5. Good rabi yield will bring relief.
Shaktikanta Das expects food inflation to moderate in the fourth quarter. This will happen due to seasonal drop in vegetable prices and arrival of kharif crop. Good soil moisture and water in reservoirs are conducive to good Rabi production.
6. Inflation outlook negative
According to Das, since the October policy, the inflation outlook has turned ‘somewhat unfavorable’ for the near term. Global energy prices and domestic supply constraints could push up inflation.
7. It became difficult to achieve the goal.
The RBI governor admitted that achieving the 4% inflation target in a sustainable manner is proving difficult.
8. Domestic Economic Situation ‘On Balanced Path’
Despite inflationary pressures, Das said the domestic economic situation was “on a balanced path”. Steady growth and strong fundamentals provide some stability. “The MPC is committed to restoring balance between inflation and growth in the overall interest of the economy.”
9. Effect on disposable income
High inflation reduces the disposable income of consumers. This reduces private consumption, which negatively affects real gross domestic product (GDP) growth.
10. Protectionism can increase inflation.
Das highlighted rising global protectionism as a potential challenge. He warned that such policies could harm global growth and increase inflation by disrupting supply chains and trade flows.
