The Reserve Bank of India’s (RBI) latest article in the June bulletin sheds light on the current economic scenario, particularly focusing on inflation and growth trends. Here’s a detailed breakdown of the key insights:

Consumer Price-Based Inflation (CPI):

• CPI is gradually moderating, reaching 4.7% in May 2024, the lowest in the past 12 months, down from 4.8% in April.
• Despite this moderation, volatile and elevated food inflation continues to pose a significant challenge to the disinflation process.
• The article highlights that the sustained softening of the core component of inflation is driving the gradual easing of headline inflation. However, the path to disinflation is frequently interrupted by fluctuating food prices.

Food Inflation:

• Year-on-year (y-o-y) food inflation remained unchanged at 79% in May.
• Within the food sub-groups:
  1. Inflation increased for cereals, eggs, fruits, and pulses.
  2. Inflation moderated for meat and fish, milk, sugar, spices, non-alcoholic beverages, and prepared meals.
  3. Vegetable prices recorded double-digit y-o-y inflation for the seventh consecutive month.
  4. Edible oils continued to be in deflation, albeit at a slower rate than the previous month.

Agricultural Prospects:

• The prospects for agriculture are brightening due to the early landfall of the southwest monsoon.
• However, the India Meteorological Department (IMD) predicted that the average June rainfall is likely to be below normal, at less than 92% of the Long Period Average (LPA). Since the start of the monsoon period on June 1, rainfall has been 20% below normal.

Monetary Policy Committee’s (MPC) Assessment:

• The MPC expects good agricultural production to spur rural demand and, in turn, support private consumption.
• Investment activity is anticipated to be bolstered by strong balance sheets of banks and corporates, policy emphasis on infrastructure spending, and rising business optimism.

Economic Growth:

• High-frequency indicators suggest that real GDP growth in Q1 of FY2024-25 is maintaining the pace achieved in the preceding quarter.
• The Indian economy expanded by 7.8% in Q4 FY2023-24 compared to 8.6% in Q3 FY2024.
• Domestic demand conditions remained robust during the April-June 2024 quarter:
  1. E-way bills grew by 17% y-o-y in May 2024, with growth in both inter- and intra-state E-way bills.
  2. Toll collections increased by 8.7% y-o-y in May 2024.
  3. Automobile sales recorded a 9.3% y-o-y growth in May 2024, driven by passenger vehicles and two- and three-wheelers, although growth for entry-level vehicles remained weak.
  4. Domestic tractor sales reached a seven-month high in May 2024 due to the timely arrival of the southwest monsoon and the onset of kharif season sowing, boosting farmer sentiments.
  5. Vehicle registrations moderated in May 2024, mainly in the non-transport vehicles segment, as extreme heat reduced walk-ins and registrations.

GDP Projections:

• For FY25, the RBI projects real GDP to rise by 7.2%, building on the growth rate of 8.2% achieved in the previous year.

In conclusion, while the Indian economy shows signs of robust growth and improving demand conditions, the persistent challenge of volatile food inflation remains a critical factor to monitor. The early monsoon arrival offers some optimism for agricultural output, but rainfall predictions underscore the need for cautious optimism.