New Delhi: The Reserve Bank of India (RBI) has predicted that headline inflation will average well above 6% in the second quarter of the financial year 2023-24 (FY24). However, core inflation, which excludes food and fuel prices, has moderated.
Headline inflation rose to 7.44% in July 2023, the highest level in 15 months. This was driven by rising food prices, particularly vegetables. The RBI has said that headline inflation is expected to remain elevated in the near term, but it will start to decline in the second half of FY24.
Core inflation, on the other hand, has moderated from its peak of 6.1% in April 2023 to 5.7% in July 2023. This is a positive sign, as it suggests that the underlying price pressures in the economy are easing.
The RBI has said that it will continue to monitor inflation closely and will take appropriate measures to ensure that it remains within its target range of 2-6%.
The rise in headline inflation is a concern for the RBI, as it could erode the purchasing power of consumers and dampen economic growth. The central bank is likely to keep interest rates on hold for the next few months to support growth, but it may start to raise rates in the second half of FY24 if inflation continues to rise.
The moderation in core inflation is a positive development, but it is too early to say whether this trend will continue. The RBI will need to keep a close eye on inflation in the coming months to ensure that it does not spiral out of control.
The major factor affecting headline inflation is the food prices. Food prices have been rising in recent months due to a combination of factors, including weather disruptions, global supply chain disruptions, and the war in Ukraine.
Fuel prices have also been rising in recent months due to the rise in global oil prices. The base effect is also contributing to the rise in headline inflation. This is because inflation was relatively low in the second quarter of FY2023, so the comparison with the same period this year is making inflation look higher.
Some factors that are contributing to the moderation in core inflation include slowdown in economic growth is leading to a decline in demand for goods and services, which is helping to keep prices in check.
The strengthening of the rupee is making imported goods cheaper, which is also helping to keep prices in check.
The RBI will need to carefully monitor the inflation situation in the coming months and take appropriate measures to ensure that inflation remains within its target range.