NEW DELHI: The RBI’s policy inaction seen in its quarterly Monetary Policy announcement stems mainly from India’s inflation rising way beyond the central bank’s comfort levels. Retail inflation rose sharply to 7.6 per cent in October, far higher than the RBI’s mandated inflation ceiling of 6 per cent.
Not only did food inflation surge to double digits, but core inflation, which measures the change in prices of goods and services other than food and energy, went up to 5.8 per cent in October.
However, the good news is that Rabi, or winter crop, sowing is now at over 350 lakh hectares, some 4 per cent over last year’s. Above normal monsoon rains and nearly 20 per cent higher reservoir levels are expected to help make the Rabi crop a success story. Agricultural experts expect India to reap a bumper winter crop which should cool down prices.
Economists expect core inflation to cool down too as supply chains disrupted by lockdowns and lack of demand in some areas return to normal. Said Shilen Shah, Senior India Economist with Capital Economics, “Our view is that core price pressures will drop as some of the supply chain problems associated with containment measures gradually get resolved and the weakness in demand more than offsets supply constraints.”
The MPC also noted that “inflation expectations of households have eased modestly in anticipation of the seasonal moderation in food prices”.
However, what may play a spoiler are prices of crude oil. Oil prices rose on Friday after major producing nations agreed to continue to restrain output to cope with `lower demand.’ As it is the benchmark Brent crude price have risen more than two-and-a-half times since the April average of just over $18 a barrel. If this trend continues oil prices could be expected to continue to edge upwards, raising inflation levels.
High crude oil prices may play spoilsport
Oil prices rose on Friday after major producing nations agreed to continue to restrain output to cope with 'lower demand.' As it is the benchmark Brent crude price have risen more than two-and-a-half times since the April average of just over $18 a barrel. If this trend continues oil prices could be expected to continue to edge upwards, raising inflation levels all over the world and halting RBI’s hand from cutting interest rates