Retail inflation likely to average 4.5%

The retail inflation is projected to average 4.5 per cent in 2024-25 and align with the target on a durable basis by 2025-26, Reserve Bank of India (RBI) Deputy Governor Michael Debabrata Patra said at a conference in New Delhi.

It is worth noting that RBI chief Shaktikanta Das reiterated on multiple occasions the need to remain focused on bringing inflation towards the four per cent target on a sustained basis before shifting policy.

Earlier this month, the RBI maintained the key short-term lending rate unchanged. Last week, in its customary post-monetary policy committee (MPC) statement, Das said, “With a lot of effort, the inflation horse has been brought to the stable — closer to the target. We must keep the horse on a tight leash, so that we do not lose control. Going forward, we need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses.”

Speaking at the high-level conference ‘Central Banking at Crossroads’ organised by the RBI in New Delhi, Patra said, “During the pre-pandemic period upto end-2019, inflation was low and stable, averaging around 4 per cent. With the outbreak of the pandemic and associated lockdowns, inflation breached the upper tolerance band in many months during 2020–21 and 2021-22. Following the Russia-Ukraine conflict, inflation again veered away from its target under the impact of multiple and overlapping food and energy shocks.”

“By April 2022, it reached a peak of 7.8 per cent. The monetary policy response was front-loaded with a cumulative hike of 250 bps during May 2022-February 2023. In July and August 2024, inflation has fallen below the target. It is projected to average 4.5 per cent in 2024-25 before aligning with the target on a durable basis in 2025-26,” he added.

Patra said the Indian experience was unique in view of the incidence of repetitive shocks to food and fuel prices, which challenged the conduct of monetary policy.