Inflation may inch down in May-June, indicates Monetary Policy Committee

Retail price inflation may inch down slightly in May and June or remain flat in one of the months compared to 4.7 per cent in April, if projections of the Monetary Policy Committee (MPC) prove to be true.

The MPC, which met for three days ended Thursday, pegged the Consumer Price Index (CPI)-based inflation rate at 4.6 per cent for the first quarter of the current financial year against 5.1 per cent, forecast in the April policy.

Of the three months in the first quarter, the inflation rate stood at 4.7 per cent in April. The numbers for May are slated to come out on Monday.

The panel also cut its projection for CPI inflation rate to 5.2 per cent for the second quarter against 5.4 per cent, pegged earlier.

Because of the new projections for the first two quarters, the retail price inflation for the entire 2023-24 was cut down slightly to 5.1 per cent from 5.2 per cent earlier. The inflation rate stood at 6.7 per cent in 2022-23 and 5.5 per cent in 2021-22.

The projections for Q3 and Q4 were retained at 5.4 and 5.2 per cent, respectively.

The MPC made these projections on the assumption of a normal monsoon.

Though it said the forecast of normal monsoon by the India Meteorological Department (IMD) augurs well for kharif crops, it cautioned that the spatial and temporal distribution of the monsoon would need to be closely monitored to assess the prospects for agricultural production.

IMD had said last month that the monsoon would be below normal in the north-west region, including the grain bowls of Punjab, Haryana and Uttar Pradesh. However, most of this part is irrigated.

Elsewhere, the weather office predicted a normal monsoon.

Amid Saudi Arabia announcing voluntary cuts in oil production, the MPC said the crude oil prices have eased but the outlook remains uncertain.

It cited the early results from the Reserve Bank’s surveys to say that manufacturing, services and infrastructure firms polled expect input costs and output prices to harden. However, it said a clearer picture will emerge when the final survey results are available.

So far, as the economic growth for the current financial year is concerned, the MPC has retained the earlier projections at 6.5 per cent.

RBI Governor Shaktikanta Das had correctly anticipated that the economic growth would be higher than Advance Estimates projections at 7 per cent for 2022-23. It turned out to be 7.2 per cent for the year. It would now be interesting to see whether projections of the MPC, chaired by the RBI governor, for 2023-24 would also hold true for FY’24.

While the projections for the gross domestic product (GDP) growth were maintained for 2023-24, changes were made in these forecasts for the quarters. The last two quarters are expected to give slightly less rate of growth than pegged earlier and the initial two quarters are likely to deliver more economic expansion than assessed in the April policy.

The panel said higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year.

Also, the government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity, it said.

However, it cautioned that weak external demand, geo-economic fragmentation, and protracted geopolitical tensions pose risks to the outlook.