Vegetable Prices to Easy by Sept, Says RBI Governor

Mumbai: The Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said that core inflation in India still remains elevated, but prices of vegetables could start easing by next month due to arrival of fresh crops.

In his speech titled Building Blocks for a Sustainable Future at an event Das said that while domestic conditions are favourable for India's growth momentum to continue, the challenge of high inflation, still persists and has to be effectively addressed.

After reaching a low of 4.3 per cent in May 2023, headline inflation has risen to 7.4 per cent in July driven by the surge in tomato and other vegetable prices. The July print which was released after the monetary policy committee (MPC) meeting was on the higher side compared to our estimates said Das.

Prices of vegetables surged by 37.3 per cent (year-on-year), led by an increase of 201.5 per cent in tomato prices. Reflecting these drivers, food group inflation more than doubled from 4.7 per cent in June to 10.6 per cent in July. On the positive side, inflation excluding food and fuel (core inflation) has softened by around 130 basis points from its recent peak in January 2023. Although it is still elevated at 4.9 per cent, this steady easing of core inflation over the last five months is indicative of the ongoing transmission of monetary policy, he said.

Looking ahead, the spike in vegetable prices in July is starting to see a correction, led by tomato prices. New arrivals of tomatoes in mandis are already softening prices, coupled with proactive supply management in the case of onions. "We expect to see an appreciable slowdown in vegetable inflation from September. Meanwhile, the prospects for kharif crops have improved, thanks to the progress of the monsoon in July, although the cumulative rainfall has again moved into the deficit territory."  

The outlook for cereal prices has accordingly brightened, supported by active supply side interventions. Sudden weather events, El Niño conditions and renewed geopolitical tensions, however, impart uncertainty to the food prices outlook he said.

The central bank remains firmly focused on aligning inflation to the Monetary Policy Committee’s (MPC) mandated medium-term target of 4 per cent Das said.

The RBI will be on guard to ensure the second-order impact of inflation is not persistent, he added.

The Monetary Policy Committee in its meeting earlier this month held rates and monetary stance remained at focusing on withdrawal of accommodation. It also raised the inflation forecast for the fiscal year to 5.4 percent from 5.1 percent that it forecast earlier.

Das said that overall domestic conditions are favourable for the growth momentum to continue and the capex cycle to gain momentum in 2023-24. "Opportunities are now promising and can be utilised to propel our economy to a higher growth trajectory," said Das.

India’s real gross domestic product (GDP) recorded a growth of 7.2 per cent in 2022-23, surpassing its pre-pandemic level by 10.1 per cent.

"Amidst a volatile world environment, India stands out as the emerging growth engine for the world," he said.