Early signs of second-order effects: RBI cannot ignore price pressures

It is worth highlighting that even if the headline or food inflation rate comes down, it will only reduce the pace of price increase and consumers will continue to pay comparatively high prices

Some economists have argued in recent weeks that the economic momentum in India is slowing. The “State of the Economy” article in the latest Monthly Bulletin of the Reserve Bank of India (RBI) — though it does not reflect the view of the central bank — argues that it appears the slack observed in the second quarter is now over. Private consumption is again driving domestic demand, though the picture is mixed. RBI economists expect real gross domestic product to grow 6.7 per cent in the second quarter and 7.6 per cent in the third quarter this financial year. The