Cereals, pulses, and edible oil prices have eased in August, offering some respite from persistent food inflation, according to the Reserve Bank of India’s latest bulletin.
According to the bulletin, India’s headline inflation rate fell sharply, dropping 154 basis points to 3.5% in July 2024, down from 5.1% in June. This decline was mainly driven by a favorable base effect of 2.9%, which helped offset a positive momentum of 1.4%.
“High-frequency food price data for August so far (up to 12th) show that the price of cereals, pulses and edible oil recorded a broad-based moderation,” the article, authored by a team led by Reserve Bank Deputy Governor Michael Debabrata Patra, said.
While these staples showed relief, the bulletin highlighted that potato prices continued to climb among key vegetables, even as onion and tomato prices saw declines.
Another article in the bulletin, titled “Are Food Prices Spilling Over?”, highlighted that core inflation has been decreasing since 2022-23 due to monetary policy actions and the diminishing impact of cost-push shocks. Yet, food price shocks have consistently pushed core inflation higher, though this has been countered by the RBI’s disinflationary policies.
Authored by Patra, Joice John and Asish Thomas George, the article cautioned that if these disinflationary forces weaken, the pressure on core and headline inflation could increase significantly, especially with rising aggregate demand and geopolitical tensions driving cost-push risks.
The authors stressed that food price pressures need to be closely monitored. They argued that the traditional view of food price fluctuations as temporary is becoming harder to maintain.
The persistence of high food inflation is shaping long-term inflation expectations, making a cautious and balanced monetary policy approach necessary in the coming months.
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