The union government is working with the Reserve Bank of India (RBI) to frame measures to check inflation, Ministry of Finance officials told the press today. Inflationary pressure has not eased yet, but it should as prices of crude oil and food items like edible oil fall, the source said. Further, a top government source said that India will be the fastest growing economy in the world this year.
While inflation continues to be above the comfort zone, the economy has continued on its recovery path, supported by pent-up demand for services and higher industrial output.
On swelling trade deficit, the person said the current account deficit (CAD) should steady hereafter. Inflation has stayed above the upper tolerance limit of 6% for six straight months.
Meanwhile, retail inflation in India will likely ease in July as food and commodity prices cooled but remained above the 6% upper limit of the central bank’s tolerance range for the seventh consecutive month, a Mint survey of 28 economists projected.
The survey’s median estimate showed inflation is expected to slow to 6.78% in July from 7.01% in June, slowing for the third straight month, convincing many economists that inflation has probably peaked. Predictions in the poll ranged from 6.50% to 6.91%. The official inflation data for July will be released on Friday. “While the moderation in inflation levels in May and June—after a peak of 7.8% in April—is partly attributable to base effects, the July print will be primarily driven by a drop in food prices," said Kanika Pasricha, an economist at Standard Chartered Bank.
Inflation remained above 7% across all the months in the June quarter due to high food and commodity prices. The trend has forced the six-member Monetary Policy Committee (MPC) of the RBI to lift the benchmark repo rate by a total of 140 basis points over its last three meetings since early May.
However, the estimates for July show that India’s inflation problem seems to have bottomed out sooner than the MPC thought. At its latest meeting earlier this month, RBI retained inflation projections for FY23 at 6.7% and estimated inflation to average 7.1% in the September quarter.
“There is more evidence that inflation in India has peaked for now, and it is likely to slow faster than RBI’s published trajectory, coming into the target band by October, according to our latest tracking estimates," said Rahul Bajoria, chief economist at Barclays, in a report dated 3 August.