The Reserve Bank of India (RBI) has raised the inflation forecast for the current financial year 2024-25 from 4.5 percent to 4.8 percent. RBI Governor Shaktikanta Das said that inflation is likely to remain high in the third quarter due to rising food prices and other factors.

Food price pressure

Das said that due to the high prices of food items, Consumer Price Index (CPI) based inflation increased to 5.5 percent and 6.2 percent in September and October 2024 respectively. He warned that pressure on food prices may persist in the December quarter as well.

Inflation expected to reach 5.7% in the third quarter

According to RBI, inflation is expected to be 5.7 percent in the third quarter of 2024-25 and 4.5 percent in the fourth quarter. At the same time, it may come down to 4.6 percent in the first quarter of 2025-26 and 4 percent in the second quarter.

Dependence on Rabi crop

The governor said that a good rabi crop would be necessary to control food inflation. The moisture in the soil and good level of water reservoirs indicate a favorable sowing of rabi crops. Also, good figures of kharif production can provide relief to the prices of rice and tur dal.

Weather and global factors challenge

Das said that adverse weather, geopolitical uncertainties, and volatility in financial markets are major risks to inflation. Vegetable prices are expected to improve during the winter, but domestic edible oil prices will have to be monitored closely.

Economic Effects of Inflation

Das said that high inflation reduces the purchasing power of consumers, which hurts consumption and investment. This can slow down GDP growth. He stressed that maintaining price stability is extremely important for sustainable development.

Need for policy support.

Das also said that if the slowdown in growth continues beyond a limit, then policy intervention may be needed. The government has given the RBI the target of keeping inflation at four percent (plus or minus two percent).

Given the current economic conditions and fluctuations in food prices, RBI has advised caution. Controlling inflation and maintaining stable growth remains RBI's priority.