Economic Survey 2022-23 stated that India’s inflation challenge in FY24 would be less stiff than what it has been this year and that India’s inflation management has been better compared to that of advanced economies.
India’s inflation management has been particularly noteworthy and can be contrasted with advanced economies that are still grappling with sticky inflation rates.
Due to the anticipated slowdown in advanced economies, inflation risks coming from global commodity prices are likely to be lower in FY24 than in FY23. However, in terms of overall risks to the benign baseline view on inflation, upside risks to India’s projected rates may outweigh the downside risks.
For instance, the re-emergence of Covid-19 in China can trigger supply chain disruptions as was the case during the pandemic period. On the other hand, if China returns to normalcy from Covid-19, there can be a surge in commodity demand – thus reversing the recent slump in commodity prices. Further, the probability of a soft landing in the US economy has risen in recent months, and that might keep up the US demand for oil. Similarly, the geopolitics associated with oil can particularly affect our imported inflation.
RBI forecasts elevated domestic prices for cereals and spices in the near term owing to supply shortages. Milk prices are also expected to spike reflecting high feed costs. In general, climate across the world has become increasingly erratic, further fortifying upside risks to food prices. A lot depends on industrial input prices: they may ease, but on the flip side their delayed pass-through to consumer prices may contribute to the stickiness of core inflation.
“Still, overall, the inflation challenge in FY24 must be a lot less stiff than it has been this year. We expect monetary and fiscal authorities to be as proactive and vigilant as they have been this year” the Survey said.
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