Soon after Reserve Bank of India governor Shaktikanta Das cautioning that “recurrent and overlapping” inflation would continue to haunt the country, a report of HSBC Global Research said that food inflation would remain at manageable levels in the coming months. The banks optimism appears especially significant since data on projected farm output and water levels in reservoir are less than encouraging. The water levels are directly related to the planting of rabi or winter crops. The HSBC report, titled India Economics Comment: The fog of food prices, has attributed its optimism to better supply-side management. But it has also mentioned that rural demand might stay depressed which is likely to produce some fiscal pressure on the government in the run-up to the polls. Since summer this year, food prices have tormented the country and were almost singularly responsible when the retail inflation shot up to 7.44% in July, a 15-month high. The high vegetable prices that were supposed to be the villain were attributed to supply shocks. The figures for retail inflation and food inflation in July-September demonstrate how closely headline figures and food inflation are intricately linked. Retail inflation and food inflation rate in July were 7.44% and 11.51% while the figures for August were 6.83% and 9.94%. Food inflation climbed down to 6.56% in September, and it helped the retail inflation to settle at 5.02% in that month. The decline was helped by reducing food inflation. However, it was still higher than 4% — the long-term goal of the RBI bosses. According to a poll of 17 economists conducted by Mint, India’s retail inflation could inch down to 4.8% in October. Again, the cooling food prices are supposed to be bringing it down. The recently released first advance estimate of the kharif crop production is weak. Cumulative foodgrains production was down by 4.6% from the final estimates of last year. While rice output is expected to shrink 3.8%, pulses production can go down by as much as 6.6%, the report said. “We remain particularly watchful of cereal prices – mainly rice and wheat – which make up 20% of the food basket. In fact, we find that cereal inflation shocks are more salient, and can even spillover into core, peaking in about eight months, while vegetable inflation shock tends to peter away quickly,” the HSBC report added. Incidentally, while the US Federal Reserve has signalled that it might revise key rates upwards if need be, the RBI is expected to hold rates steady in the near future. “Ample reserves, solid domestic growth and largely contained inflationary pressures offer the central bank (RBI) manoeuvrability of monetary policy calibration,” Moody’s Investor Services said in a recent report.
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