RBI's MPC Committee airs concern about trends in food inflation

The central bank opted to keep both the repo rate and the stance unchanged in its December monetary policy.

In November, India witnessed a surge in retail inflation, reaching 5.5 percent, marking its fastest jump in three months.

This rise was primarily attributed to higher food prices. Food inflation, representing nearly half of the overall consumer price basket, escalated to 8.70 percent in November, up from 6.61 percent in October.

India’s food inflation is likely to remain elevated in December too.

“Moving forward, while food inflation has receded from the highs seen in July, it remains elevated,” RBI Governor Shaktikanta Das said in the minutes.

“In the immediate months of November and December, a resurgence of vegetable price inflation is likely to push up food and headline inflation. We have to remain highly alert to any signs of generalisation of price impulses that may derail the ongoing process of disinflation,” Das said.

Deputy Governor M. D. Patra, adopting a more hawkish stand compared to other committee members, emphasised that inflation is highly vulnerable to spikes in food prices.

This assessment is backed by the marked increase in momentum, showed in daily data on crucial food items during November and early December.

“Consumers, too, reveal more pessimism about inflation a year ahead than when they were surveyed in September. Consequently, monetary policy has to remain on high alert with a restrictive stance,” Patra said.

He said the recent gross domestic product (GDP) data release reinforces the view that the output gap in India has turned positive since the beginning of the year and remains so.

“This points to the likelihood of demand-pull shaping the course of inflation outcomes in the period ahead, amplifying future supply shocks,” he said.

Another external member, Rajiv Ranjan, said concerns over elevated food inflation are a major source of uncertainty for the inflation outlook.

External Member Shashank Bhide expressed short-term concern about food inflation, underscoring the necessity for ongoing policy support to sustain the trajectory towards the inflation target.

Meanwhile, External Members Ashima Goyal and Jayanth Varma raised the issue of elevated real interest rates as inflation approaches the target.

Goyal suggested that if inflation consistently moves towards 4 percent by mid-2024, corrective measures are essential to prevent real rates from becoming excessively high.