Food price volatility remains ‘contingent risk’ for CPI inflation: RBI

The Reserve Bank of India (RBI) released a monthly bulletin on Friday, September 20, stating that food price volatility remains a contingent risk, even though the inflation indicator, the consumer price index (CPI), came below the central bank's target for the second time in August.

“Consumer price index (CPI) inflation came in below the Reserve Bank’s target for the second consecutive month in August, although in light of the recent experience, food price volatility remains a contingent risk,” said the Reserve Bank of India (RBI) in its - State of the Economy article.

India's central bank also flagged that the slowdown in global economic activities and a sluggish disinflation situation are creating a sense of caution among monetary policy authorities.

“Global economic activity is slowing down while the pace of disinflation remains sluggish, provoking caution among monetary policy authorities,” said RBI in its statement.

RBI stated that the domestic drivers for the economy, like private consumption and gross fixed investment, were robust, and the country's net exports remained sequentially positive in support of India's gross domestic product (GDP) in the first quarter of the financial year 2024-25, according to the RBI release.

The CPI index remained flat in July and August and came below the RBI's target for the second consecutive month in the August reading and some of the vegetable price shocks which happened have started to reverse themselves.

“Some vegetable price shocks have begun to reverse, and if this continues and broadens, the persistence that characterised food inflation developments in the first quarter of 2024-25 may be behind us,” said the Reserve Bank of India. The central bank warned that an unfavourable base effect may haunt the September number.

The estimate of inflation averaging 4.5 per cent in the second half of the financial year 2024-25, as set out in the August 2024 resolution of the MPC, “have improved.” 

RBI Articles

Apart from the State of Economy article, RBI's article on Priority Sector Lending: The Indian Experience by Sambhavi Dhingra, Arpita Agarwal, and Snehal S. Herwadkar highlights priority sector lending being used as a tool to direct credit to the needy sectors.

“Priority sector lending (PSL) in India has been used as a policy intervention tool to direct credit to the needy sectors of the economy. This article evaluates the commercial viability of such loans and their impact on the overall financial health of banks using quarterly bank-level data from March 2006 to March 2023,”

RBI also released two other articles as part of its September release. Synchronisation of Indian States’ Business Cycle and Peeling the Layers: A Review of the NBFC Sector in Recent Times were the two releases from RBI's September Bulletin, according to the central bank's website.