RBI increases the inflation projection for H2 FY20 in the increase in vegetable prices

MUMBAI: The Reserve Bank of India (RBI) on Thursday raised its inflation forecast to 5.1-4.7 percent for the second half of the current tax following the rebound in prices of vegetables such as onions and tomatoes.

The central bank had previously estimated general inflation at 3.5-3.7 percent for the second half of the current fiscal year.

In the future, inflation prospects are likely to be influenced by several factors. First, the increase in vegetable prices is likely to continue in the immediate months; however, a rebound in arrivals at the end of the Kharif season along with measures taken by the government to increase supply through imports should help soften vegetable prices in early February 2020, the RBI said. in its fifth bimonthly review of the fiscal policy of the prosecutor.

There are incipient price pressures that are observed in other foods such as milk, legumes and sugar that are likely to remain, with implications for the trajectory of food inflation, he said.

Retail inflation rose sharply to 4.6 percent in October, driven by an increase in food prices.

Speaking of the drivers of the Consumer Price Index (CPI), he said, food inflation rose to 6.9 percent in October, a maximum of 39 months, driven by a sharp increase in vegetable prices due to heavy rains not seasonal

Onion prices, in particular, shot up 45.3 percent in September and 19.6 percent in October, he said.

Inflation in several other foods such as fruits, milk, legumes and cereals also increased, reflecting various factors: the increase in forage price costs in the case of milk; decreased production and planting area of ‚Äč‚Äčlegumes; and minimum effects of the support price. Sugar prices and confectionery products came out of deflation in October because sugarcane production declined annually, he said.

However, he said that domestic demand has slowed down, which is reflected in the weakening of inflation, excluding food and fuel. Crude oil prices are expected to remain within the range, excluding any supply disruption due to geopolitical tensions.

Given these factors, the CPI inflation forecast is revised upward to 5.1-4.7 percent for H2 from 2019-20 and 4.0-3.8 percent for H1 from 2020-21, with widely balanced risks, he said.

Therefore, it is prudent to carefully monitor incoming data to obtain clarity on inflation outlook.

Similarly, the next union budget will provide a better insight into the additional measures that the government must take and its impact on growth, he said.