Consumer price index inflation had reached high levels due to the increase in vegetable costs, but it has since far above the top limit set by the RBI’s inflation-targeting framework. This should be cause for alarm and prompt the issue of why the RBI’s assessment was so pessimistic, as well as whether the higher inflation figure, if it had been known at the time, would have had any bearing on its decision about the policy rate.
Source: The Economic Times
The rise in food prices was the key factor contributing to the inflation spike. The surge in the food category was mostly caused by vegetables, then spices, legumes, and cereals. According to the RBI, the spike in vegetable prices is only transitory and may subside once new supplies start to arrive. In order to intervene in the market, the government has chosen to sell wheat and rice from the Food Corporation of India’s inventories.
Core inflation had decreased even while food inflation was on the rise. However, the hopes of moderation could be erroneous because food prices heavily depend on the monsoon’s behavior, which has been abnormal so far this year. Meanwhile, the price of crude oil is rising once more, which will also contribute to inflation. It is the RBI’s duty to return the inflation rate to the 4% objective, but it is unlikely that it will do so anytime soon.
Not only is the RBI responsible for keeping inflation under control, but the government also needs to do so. A politically sensitive issue is the increase in costs of basic goods, particularly food items, especially as the nation approaches its general elections. More than the rich, the poor suffer from high costs, and public anger with price increases can negatively impact the chances of the ruling party.
Source: Business Today
Therefore, additional government intervention is anticipated in the following weeks to control prices. However, these restrictions may also have an impact on farm incomes. Inflation will affect the overall economy in addition to people’s budgets and purchasing power. A drop in demand brought on by higher prices will hurt the economic recovery, which was beginning to stabilize. Therefore, the price indications require immediate attention.
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