Prospects of a bumper kharif harvest are expected to lower food inflation in the coming months, making the country’s inflation outlook benign, the Union Ministry of Finance (FinMin) said in its monthly economic report for October released on Monday.
“Bright agricultural production prospects make the inflation outlook benign, despite existing price pressures in select food items.
"Early November trends signalled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains,” it said.
Consumer price inflation increased to a 14-month high at 6.2 per cent in October, primarily driven by double-digit food inflation while core inflation remained range bound at 3.8 per cent.
The ministry’s latest inflation outlook comes at a time when various government officials are nudging the Reserve Bank of India (RBI) towards a rate cut while the central bank remains firmly focused to bring down inflation on a sustained basis.
Last week, Finance Minister Nirmala Sitharaman had called on banks to make interest rates more affordable, describing the current high cost of borrowing as “very stressful”.
Her comments came days after Trade Minister Piyush Goyal made a case for the RBI to cut interest rates to boost economic growth by looking through the high food inflation while deciding on monetary policy.
On the other hand, RBI Governor Shaktikanta Das has maintained that there are significant risks to the inflation outlook and that any premature rate cut could upset the balance.
The monthly report highlighted that India’s export recovery may encounter challenges due to softening demand in developed markets.
It said that policy decisions of the next administration in the United States would determine the course of trade and capital flows among other factors, such as geopolitical developments and global interest rates.
The FinMin also noted that the recent developments in the ongoing Russia-Ukraine conflict have caused some concern in financial markets with safe-haven assets, such as US Treasuries and gold, finding a bid.
Amidst a clouded global background, and after a brief period of softening momentum over the monsoon months, the FinMin’s report said many high-frequency indicators of economic activity in India have shown a rebound in October.
“India's economic outlook for the coming months is cautiously optimistic, with agriculture likely to benefit from favourable monsoon conditions, increased minimum support prices and adequate supply of inputs,” the FinMin said.
The report noted the cautious picture of urban consumers’ perceptions of employment conditions and manufacturers’ hiring sentiments in RBI surveys.
It also stated that the high-frequency indicators, such as net payroll additions under the Employee Provident Fund Organisation, show that the labour market is showing signs of growth.
© 2024 Rediff.com -