India cenbank says high food prices hindering disinflation trajectory

By Swati Bhat

MUMBAI (Reuters) - The Reserve Bank of India said on Monday high food prices was impeding the recent easing in inflation, causing its efforts to rein in prices remain a "work in progress".

The RBI cautioned elevated and volatile food prices could cause headline inflation numbers to potentially rise after a temporary fall below the target in the second quarter of 2024/25.

"Consequently, a resolute commitment to a durable alignment of headline inflation with the target will warrant careful monitoring of spillovers from food price pressures to core inflation and inflation expectations," it added.

Annual retail inflation in May came in at 4.75%, down from 4.83% in April and lower than the 4.89% forecast by 50 economists polled by Reuters. Core inflation, however, touched a record low at around 3.12%.

Even as inflation remains a concern, the RBI said high frequency indicators point towards a sustained momentum in domestic demand conditions during the first quarter of 2024-25.

It also expects GDP growth to broadly maintain the pace achieved during the preceding quarter. According to the economic activity index, Q1 GDP is likely to remain close to 7.4%, it added. The data is due in August.

The central bank also said that prospects for agriculture were brightening with expectations of an above-normal south-west monsoons.

"This should augur well for spurring rural demand and, in turn, support private consumption," it added.

India should avoid "adventurism" and continue to focus on bringing down inflation towards the target despite the growing clamour to signal a pivot in monetary policy, Governor Shaktikanta Das had said in a speech on Tuesday.

(Reporting by Swati Bhat; Editing by Nivedita Bhattacharjee)