1 min read.Updated: 13 Sep 2021, 11:13 PM ISTLivemint
August’s drop should come as a relief for RBI, which has been looking through elevated inflation levels in covid times on the premise that it’s only ‘transient’ and needs no policy action to reduce
Retail inflation cooled again in August, moving further below the Reserve Bank of India’s (RBI) 6% upper bound. Government data released on Monday showed that consumer prices rose 5.3% from a year earlier, slower than July’s 5.6% rise.
August’s drop should come as a relief for RBI, which has been looking through elevated inflation levels in covid times on the premise that it’s only “transient" and needs no policy action to reduce. As covid constraints ease, according to RBI, so will supply bottlenecks that had turned various prices volatile. If the next few readings show a similar easing, the central bank can be said to have got it right. However, inflation risks remain high. Red-hot commodity prices, for one, could cause it to heat up. As the second-round effects of high fuel costs begin to show up in the prices of other goods, which usually happens with a lag, price pressures could intensify. Thankfully, abundant monsoon rainfall should help keep food inflation in check. However, this must not permit complacency. Should RBI continue to look the other way, it could risk unhinging inflation expectations, potentially with long-term economic repercussions. We need a sustained vigil.