RBI bulletin: Inflation faces heat from extreme weather

MUMBAI: Conditions are shaping up for an extension of a trend upshift in real GDP growth in India, though extreme weather events along with prolonged geo-political tensions may pose a risk to inflation, said the RBI’s April bulletin released on Tuesday.

The retail inflation based on the Consumer Price Index (CPI), which the Reserve Bank of India (RBI) factors for its monetary policy, eased to 4.9 per cent in March after remaining at 5.1 per cent during the two preceding months.

“There is a sizzle in the spring of 2024,” said an article on ‘State of the Economy’.

Global weather agencies are in agreement that March 2024 was the warmest March since record-keeping began in 1850 – the global surface temperature was at 1.6 degrees Celsius (3.01°F) above the 1880-1899 period.

Careful monitoring during the summer is warranted as overlapping food price shocks play out, before an above-normal Southwest monsoon this year, as projected by the India Meteorological Department (IMD), enabling an easing of food price pressures, said the article authored by a team led by RBI deputy governor Michael Debabrata Patra.

“In the near term, however, extreme weather events may pose a risk to inflation along with prolonged geopolitical tensions that could keep crude oil prices volatile.

“Overall, the projection indicates further easing of headline inflation in the coming months before unfavourable base effects kick in during the second half of the year, which have to be seen off,” it said.

While alignment with the inflation target is gradually occurring, incoming data will provide greater clarity and confidence on the disinflation path, it added.

On economic growth, the article said conditions are shaping up for an extension of the trend upshift that took the average real GDP growth above 8 per cent during 2021-24.