Durable alignment with inflation target may happen only in second half of the year: RBI bulletin

Durable alignment of the inflation with target of 4 percent may happen in the second half of the year, Reserve Bank of India’s (RBI) latest monthly bulletin said on May 21.

“It is only in the second half of the year that a durable alignment with the target may re-commence and sustain till numbers closer to the target are sighted during the course of 2025-26,” the RBI’s monthly State of the Economy article said.

The central bank have a inflation target of 4 percent, with a leeway of 2 percentage point on either side.

It further said that statistical base effects may help pulling down the headline inflation in July and August, it is expected that September may see a reversal.

The monthly State of the Economy article includes Deputy Governor Michael Patra – one of the three RBI representatives on the Monetary Policy Committee (MPC) – as one of its co-authors. The views expressed in the article do not reflect the central bank’s official stance, RBI said in a release.

India’s headline retail inflation stayed largely unchanged at 4.83 percent in April, according to data released by the Ministry of Statistics and Programme Implementation on May 13.i

The Consumer Price Index (CPI) inflation in March was at a 10-month low of 4.85 percent.

Even though inflation eased to an 11-month low in April, it will be the 55th month in a row that it would be above the RBI’s medium-term target of four percent. The central bank is keen to bring it down to the target on a durable basis.

The bulletin said Food inflation (y-o-y) edged up to 7.9 per cent in April from 7.7 per cent in March. In terms of subgroups, inflation firmed up in cereals, meat and fish and fruits while eggs, milk, vegetables, pulses, sugar,
spices, non-alcoholic beverages and prepared meals registered a moderation in inflation.

Edible oils remained in deflation, albeit at a slower rate, it added. Fuel and light prices deflation deepened to around (-) 4.2 per cent in April from (-) 3.4 per cent in March, mainly on account of sharper deflation in LPG prices on a y-o-y basis. Electricity prices, however, recorded a y-o-y inflation of 10.2 per cent in April 2024.

On the core inflation front, bulletin said that it eased further to 3.2 per cent in April from 3.3 per cent in March, the lowest in the current CPI series. The moderation was mostly broad-based as inflation in pan, tobacco and intoxicants, clothing and footwear, transport and communication, recreation and amusement, and education softened, whereas personal care and effects inflation registered a pick-up.

In April monetary policy, the central bank kept repo rate unchanged at 6.50 percent for the seventh time in a row, in line with the market expectations, with its focus firmly on bringing inflation down.

In its first meeting of FY 25, the rate-setting panel left the stance unchanged as withdrawal of accommodation. The decisions were takes with a 5:1 majority.

Last month, minutes of the RBI published on April 19, showed that majority of RBI’s MPC members expressed caution on upside risks to inflation, particularly emanating from uncertainties in food prices, at the panel’s policy review.

“While low core inflation would further the disinflation process, concerns remain on food inflation outlook. We need to remain watchful on upside risks to inflation outlook from adverse climatic factors, supply side shocks and geopolitical events,” said Rajiv Ranjan in RBI minutes.

Adding to this, RBI Deputy Governor Michael Debabrata Patra said recent inflation prints and high frequency data on salient food prices indicate that food inflation risks remain elevated.