Heatwave and Global Tension May Push Food And Fuel Inflation In India

Inflation In India Update: In its monthly bulletin, RBI has termed changes in weather and global tension as the biggest risks to the decline in inflation. The Meteorological Department has said in its forecast that extremely high temperatures may be seen in this summer season. The month of April is not even over and its effects are already visible. So the tension between Iran and Israel is adding fuel to the fire of inflation. And this same concern is troubling RBI also.

food inflation risk

There has been a continuous decline in the retail inflation rate between January and March, the first three months of the current year. In the inflation data released by the Ministry of Statistics for the month of March on April 12, 2024, the retail inflation rate came down from 5 percent to 4.85 percent, which is a short distance from the RBI's target of bringing it down to 4 percent. The retail inflation rate in December 2023 was 5.7 percent. The average inflation rate in the fourth quarter of the financial year 2023-24 has been 5 percent. But the risk of food inflation remains.

Crude oil can go up to $100/barrel

It has been said in the RBI bulletin that there is a need to be very cautious about food inflation in this summer season because the inflation of food items can give a big blow. According to the RBI article, abnormal weather is not only a threat to inflation but due to long-standing geo-political tension, crude oil prices may remain volatile. Recently, crude oil had reached $91 per barrel and many experts are predicting it to go up to $100 per barrel.

MPC also expressed concern over food inflation

Only last week, RBI released the minutes of the first monetary policy meeting for the financial year 2024-25 and said that during the meeting, the members have termed food inflation as the biggest risk. RBI Governor Shaktikanta Das said that there is a need to be very cautious about inflation. So the second member of MPC, Michael Debabrata Patra said, the data coming out regarding the impact of current inflation and food inflation rate is enough to show that the risk of food inflation remains. He has also predicted that prices will increase due to increase in temperature till May 2024.

What will be the effect of increase in inflation?

If inflation increases due to increase in prices of food items and crude oil, then the hope of getting relief from expensive debt in the year 2024 will not be possible. On top of that, increase in inflation rate will affect people's savings. Earlier, many economic experts and agencies had expressed the possibility of reduction in policy rates by RBI in the second half of 2024. But in view of climate change and global tension, at present RBI will not take any risk of changing its policy rate.

Last week, Morgan Stanley economists said in their note that the chances of the Reserve Bank of India cutting its policy rates i.e. repo rate during the financial year 2024-25 are very less. Morgan Stanley economists Upasana Chachra and Bani Gambhir wrote in their note, RBI will not make any changes in its policy rates in 2024-2025 and RBI's repo rate will remain at 6.5 percent.

No change in repo rate in 7 MPC meeting

After retail inflation went up to 7.8 percent in May 2022, RBI started increasing the repo rate to control inflation and increased it from 4 percent to 6.5 percent in the next six policy meetings. But in the last seven monetary policy meetings, RBI has not made any change in its policy rates. But the risk of inflation rising due to food inflation and rise in crude oil prices has dashed the hopes of loans becoming cheaper.

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