RBI raises FY'25 inflation estimate to 4.8%; food price pressures to keep CPI elevated in Q3

New Delhi: The Reserve Bank on Friday raised the inflation projection for current fiscal year to 4.8 percent from 4.5 percent with Governor Shaktikanta Das saying lingering food price pressures are likely to keep headline inflation elevated in the December quarter.

Consumer price index (CPI)-based inflation increased sharply in September and October 2024 led by an unanticipated increase in food prices.

Core inflation, though at subdued levels, also registered a pick-up in October. Fuel group remained in deflation for the 14th consecutive month in October.

"In the near term, despite some softening, lingering food price pressures are likely to keep headline inflation elevated in Q3," Das said while unveiling the December 2024 monetary policy.

RBI said CPI inflation for 2024-25 is projected at 4.8 percent, with Q3 at 5.7 percent; and Q4 at 4.5 percent.

In the October policy, the central bank had estimated the inflation at 4.5 percent for the fiscal ending March 2025.

"Going ahead, a good rabi season would be critical to the softening of the food inflation pressures. Early indications point to adequate soil moisture content and reservoir levels, conducive for rabi sowing," the Governor said.

CPI headline inflation increased from average 3.6 percent during July-August to 5.5 percent in September and further to 6.2 percent in October 2024, which was the highest in more than a year, since September 2023.

He further said the estimates of a record kharif production should bring relief to the elevated prices of rice and tur dal. Vegetable prices are also expected to see a seasonal winter correction.

On the upside, Das said the evolving trajectory of domestic edible oil prices, following the hike in import duties and rise in their global prices, need to be closely monitored.

"The near-term inflation and growth outcomes in India have turned somewhat adverse since the October policy. The medium-term prognosis on inflation suggests further alignment with the target, while growth is expected to pick up its momentum," Das said.

He further said persistent high inflation reduces the purchasing power of consumers and adversely affects both consumption and investment demand. The overall implication of these factors for growth is negative.

"Therefore, price stability is essential for sustained growth. On the other hand, a growth slowdown – if it lingers beyond a point – may need policy support," Das said.

The Governor noted that high inflation reduces the disposable income in the hands of consumers and dents private consumption, which negatively impacts the real Gross Domestic Product (GDP) growth.

The increasing incidence of adverse weather events, heightened geopolitical uncertainties and financial market volatility pose upside risks to inflation, he added.

Das also said the last mile of disinflation is turning out to be prolonged and arduous, both for advanced and emerging market economies (EMEs).

The government has tasked the RBI to ensure inflation remains at 4 percent with a margin of 2 percent on the either side.

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