Broad flare-up in vegetable prices concerns overall disinflation that had been underway: RBI Bulletin

Global economic activity appears to be strengthening across advanced economies (AEs) and emerging market economies (EMEs) and global trade in goods and services is gathering momentum, according to RBI's July Bulletin. Monetary policy divergence is setting the tone for global economic developments. In India, the second quarter of 2024-25 has begun with signs of quickening momentum in the economy. The improvement in the outlook for agriculture and the revival of rural spending have turned out to be the bright spots in the evolution of demand conditions. Consumer price inflation ticked up in June 2024 after three consecutive months of moderation as a broad flare-up in vegetables prices halted the overall disinflation that had been underway.

Food prices are clearly dominating the behaviour of headline inflation and households inflation expectations, undermining the gains of lowering core and fuel inflation through a combination of monetary policy and supply management, RBI noted. While households current perception of inflation has been moderating, this is not being reflected in their three months ahead and one year ahead expectations which remain elevated. The accumulation of food price pressures threatens the outlook for inflation in the form of spillovers to wages, rents and expectations. In the words of Governor Shaktikanta Das, monetary policy remains squarely focused on price stability to effectively anchor inflation expectations and provide the required foundation for sustained growth over a period of time

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