India: RBI: Normal monsoon should help contain food price pressures

  • Despite admitting to price pressures both from food items and input prices, RBI Governor Shaktikanta Das on 5 May 21 hoped that a normal Southwest monsoon will have a “soothing impact” on inflation pressures and ruled out any wide variations in medium-term inflation forecast from what was given in Apr 21.
  • In an unscheduled address earlier in the day amidst the raging pandemic, Das said the overall outlook for the economy is highly uncertain and is clouded with downside risks.
  • He said inflation trajectory over the rest of 2021 will be shaped by the pandemic infections and the impact of localised containment measures on supply chains and logistics.
  • Explaining why he is sticking to the Apr 21 forecast, Das said high-frequency food prices data for Apr 21 from the department of consumer affairs suggests further softening of prices of cereals and key vegetables while price pressures in pulses and edible oils remain and so was the price of petrol and diesel which moderated in Apr 21.
  • But what is more worrisome is the persistence in core inflationary pressures and also the uptick in wholesale inflation, as reflected in manufacturing and services PMIs along with rising WPI inflation show a persistence of input price pressure.
  • The 12 May 21 release of the National Statistics Office will throw more light on inflation developments in Apr 21, he said.
  • “Going forward, a normal Southwest monsoon, as forecast by the IMD, should help contain food price pressures, especially in cereals and pulses and help sustain rural demand and overall output in FY22 while also having a soothing impact on inflation pressures. The build-up in input price pressures across sectors, driven in part by elevated global commodity prices, remains a concern, though,” Das said.

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