Alignment with 4% inflation target may occur in latter part of the year: RBI report

The central bank's inflation target stands at 4 percent, with a permissible range of 2 percentage points on either side.

“It is only in the second half of the year that a durable alignment with the target may re-commence and sustain till numbers closer to the target are sighted during the course of 2025-26,” the RBI's monthly State of the Economy article said.

The bulletin notes that statistical base effects could contribute to a decrease in headline inflation in July and August, but a reversal is anticipated in September.

Deputy Governor Michael Patra, one of the three RBI representatives on the Monetary Policy Committee (MPC), co-authors the monthly State of the Economy article.

However, the views expressed in this article do not represent the official stance of the central bank, as clarified in an RBI release.

According to data released by the Ministry of Statistics and Programme Implementation on May 13, India's headline retail inflation remained largely unchanged at 4.83 percent in April, while Consumer Price Index (CPI) inflation in March reached a 10-month low of 4.85 percent.

Despite a decrease to an 11-month low in April, inflation has persistently exceeded the RBI's medium-term target of four percent for 55 consecutive months. The central bank is committed to achieving this target on a sustained basis.

The bulletin highlights that food inflation increased slightly to 7.9 percent in April from 7.7 percent in March.

Within food categories, inflation rose in cereals, meat, and fish, as well as fruits, while moderation in inflation was observed in eggs, milk, vegetables, pulses, sugar, spices, non-alcoholic beverages, and prepared meals.

Edible oils remained in deflation, though at a slower pace. In April, deflation in fuel and light prices deepened to around (-) 4.2 percent from (-) 3.4 percent in March, primarily due to a sharper decline in LPG prices.

However, electricity prices saw a year-on-year inflation of 10.2 percent in April 2024.

Core inflation eased to 3.2 percent in April from 3.3 percent in March, the lowest in the current CPI series.

This moderation was broad-based, with inflation softening in various sectors such as pan, tobacco and intoxicants, clothing and footwear, transport and communication, recreation and amusement, and education, while a slight increase was noted in personal care and effects.

In its April monetary policy meeting, the central bank maintained the repo rate at 6.50 percent for the seventh consecutive time, aligning with market expectations and emphasizing its commitment to reducing inflation.

In the first meeting of FY 25, the rate-setting panel retained the stance of withdrawal of accommodation, with decisions made by a majority vote of 5:1.

Minutes from the RBI's MPC meeting published on April 19 indicated that a majority of members expressed caution regarding upside risks to inflation, particularly stemming from uncertainties in food prices, during the policy review.

"While low core inflation would further the disinflation process, concerns remain on food inflation outlook. We need to remain watchful on upside risks to inflation outlook from adverse climatic factors, supply side shocks and geopolitical events," said Rajiv Ranjan in RBI minutes.

Adding to this, RBI Deputy Governor Michael Debabrata Patra stated that recent inflation figures and high-frequency data on key food prices indicate that risks related to food inflation remain elevated.