Retail Inflation to See Sharp Decline in September: RBI Predicts

According to the RBI's "State of the Economy" article released in the monthly bulletin for September, the central bank expects further corrections in vegetable prices

Srajan Girdonia
New Update
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In a recent development, the Reserve Bank of India (RBI) has predicted a significant decline in retail inflation for the month of September. This promising news comes after a period of concern regarding rising inflation levels in the country. In this article, we delve into the details of this prediction and its potential implications for the Indian economy.

August Inflation Eases

In August 2023, India witnessed a welcome relief as the Consumer Price Index (CPI) inflation rate eased to 6.83 percent, down from a 15-month high of 7.44 percent recorded in July. This moderation can be primarily attributed to corrections in vegetable prices. The reversal of vegetable prices played a pivotal role in taming inflation and is expected to continue its impact into September.

Expectations for September

According to the RBI's "State of the Economy" article released in the monthly bulletin for September, the central bank expects further corrections in vegetable prices to contribute significantly to reducing retail inflation in September. 

Notably, this correction extends beyond the commonly referenced TOP (tomatoes, onions, and potatoes) group.

Core Inflation Remains Steady

While retail inflation takes centre stage, core inflation remains stable at 4.9 percent in August. The RBI highlights the significance of this steadiness, as it reflects a broad-based easing of price pressures across goods and services, underscoring the overall stability in the Indian economy.

Global Factors and Crude Oil Prices

The article authored by RBI Deputy Governor Michael Patra and other central bank officials also highlights global factors affecting India's economic landscape. Crude oil prices, which have been hovering above $90 per barrel, challenge 10-month highs. 

This price surge is attributed to voluntary production cuts by major oil-producing nations, Saudi Arabia and Russia. Additionally, the strength of the US dollar as a safe haven further exacerbates the rise in crude oil prices. These factors pose risks to global financial stability and could impact inflation on a global scale.

India's Resilience Amidst Global Challenges

Despite these global challenges, the Indian economy remains resilient and continues to stand out amidst the backdrop of darkening global prospects. Supply chain pressures, although showing an uptick since May 2023, still remain below historical averages.

The RBI's report also highlights India's economic growth in the first quarter of 2023-24, which stood at an impressive 7.8 percent. This growth was primarily driven by domestic factors, such as private consumption and fixed investment, which offset negative contributions from net exports. 

The second quarter is expected to see a further boost in GDP growth, with an estimated 6.6 percent growth rate.

Clothing and lifestyle retailers, as well as shopping malls, have experienced a sharp recovery in sales across various price points in recent weeks. This resurgence raises hopes of increased consumer demand throughout the festive season, which commenced with Rakshabandhan and Onam. The article also suggests positive indicators for discretionary retail spending, particularly in the electronics and auto sectors.

Moreover, there are encouraging signs of a revival in rural demand for fast-moving consumer goods (FMCG) after more than a year of pressure.

Future Outlook

The RBI's "State of the Economy" article paints an optimistic picture for India's economic future. As the country gears up to potentially become the world's third-largest consumer market by 2023, with per capita spending surpassing other developing economies in Asia, the outlook remains positive. 

However, continued vigilance is necessary to monitor both domestic and global factors that may impact India's economic trajectory. The forthcoming festive season and the resilience displayed by the Indian economy provide hope for a prosperous future.