The Reserve Bank of India (RBI) closely monitors Consumer Price Index (CPI) inflation as a key indicator of economic health. Here are some points typically discussed in relation to CPI inflation and the RBI’s forecasts:
- Current Trends: The RBI assesses current CPI inflation trends to evaluate price stability. This includes analyzing food prices, fuel costs, and core inflation (excluding food and energy).
- Inflation Target: The RBI has a medium-term inflation target, often around 4%, with a tolerance band (usually ±2%). Their policies aim to keep inflation within this range.
- Forecast Adjustments: The RBI regularly updates its inflation forecasts based on macroeconomic indicators, global developments, and domestic factors. These forecasts can impact monetary policy decisions.
- Monetary Policy Tools: If inflation is projected to rise above the target, the RBI may implement tighter monetary policies, such as increasing interest rates, to curb inflationary pressures.
- Economic Growth Considerations: The RBI balances inflation control with the need to support economic growth, especially in times of economic uncertainty.
- Global Factors: External factors, such as international commodity prices and supply chain disruptions, are also considered in inflation forecasts.
The RBI’s outlook on CPI inflation is critical for investors and policymakers, as it influences economic decisions and market dynamics. For the most current insights, it’s best to refer to the latest RBI reports or monetary policy statements.
Even as the Reserve Bank of India (RBI) has changed its monetary policy stance to ‘neutral’ from ‘withdrawal of accommodation’, it remains mindful of the risks to inflation in the months ahead. It has highlighted adverse weather conditions, ongoing geopolitical conflicts, and a rise in select commodities as the key threats to its inflation forecast.
The inflation horse, RBI Governor Shaktikanta Das said, has been brought to the stable, and has to be kept on a leash with doors closed so that it does not bolt again.
“The monetary policy prudently prioritised flexibility, by changing the stance to neutral, in line with our expectations. This has opened the door for a potential rate cut in December 2024, if the lurking risks to inflation, both domestic and global, do not materialise. In our view, the Indian rate cut cycle will be fairly shallow, restricted to 50 basis points (bps) over two policy reviews,” said Aditi Nayar, chief economist and head of Research and Outreach at ICRA.
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Headline consumer price index (CPI) inflation, meanwhile, moderated to 4.4 per cent in April-August 2024 from 5.2 per cent in H2-CY24. Core inflation dipped to its lowest level of 3.1 per cent in the current series (since January 2012), the RBI said, before increasing in July-August.
Food price inflation, on the other hand, remained elevated, averaging 6.9 per cent over the last five months (April-August 2024), and contributing 72.5 per cent of headline inflation during the period.
