Data released Friday showed core CPI inflation eased to a 48-month low of 3.9% in December from 4.1% in November, while CPI inflation rose to a high. highest in 4 months was 5.69% from 5.55%.
Economists say the Reserve Bank of India’s (RBI) monetary policy action may be credited with bringing down core Consumer Price Index (CPI) inflation in recent months, but the The lower core number at 4% also indicates weak demand conditions in the country at an overall level. speak.
Interestingly, this also somewhat contradicts the RBI’s assessment in its November bulletin that “investment demand appears resilient due to government infrastructure spending, rise in private investment and digitization”. The central bank even expressed concern about a possible new round of demand-driven inflation.
Data released Friday showed core CPI inflation eased to a 48-month low of 3.9% in December from 4.1% in November, while CPI inflation rose to a high. highest in 4 months was 5.69% from 5.55%.
“While India’s tightening monetary policy can be attributed to weakening core inflation, we also see clear signs of stress,” said Kunal Kundu, India economist at Société Générale. Prolonged family tensions also play a role. The Reserve Bank of India has kept the policy repo rate unchanged from February 2022 at 6.50%. In its December monetary policy meeting, the RBI said underlying deflation was “stable,” reflecting the impact of past monetary policy measures.
ICICI Bank said the fall in core inflation was due to fall in global energy and commodity prices and resulted in a pass-through effect to the economy as well as “moderate consumption”.
Weak demand can also be measured by weak growth in the production of consumer durables (goods used directly by consumers with a long life of 2 to 3 years) – in 8 months beginning of fiscal 2024, up only 0.8% year-on-year. compared to the 8.9% growth recorded in 2024. in the same period of fiscal 2023. In November, growth in durable consumption in manufactured goods was at a five-month low, at level (-)5.4%. Additionally, private final consumption expenditure (PFCE) is expected to grow 4.4% year-on-year in FY24 – according to the National Bureau of Statistics’ first preliminary estimate – here is The fastest and slowest speeds in the current series date back to 2011-12. This does not include the pandemic year FY21, where PFCE fell 5.2%.
High-frequency demand indices reflect bleaker conditions in rural areas than in urban areas. What is interesting to note is that this situation comes against the backdrop of a higher than expected GDP growth rate, i.e. 7.3% for the current financial year.
In general, economists argue that high economic growth increases demand, which then leads to higher core inflation. However, the current state of the core CPI has left some economists confused.
“The decline in core inflation at a time of strong economic growth is a headache,” said Sunil Sinha, senior economist at India Ratings and Research.
But Ashima Goyal, an external member of the RBI’s monetary policy committee, answered this question to some extent, saying there was no second-order impact on wages from previous shocks. for commodity prices, because the Indian labor market is “loose”.
According to the Regular Labor Force Survey, earnings growth of regular workers in the first quarter of FY24 increased to 7.8% from 6.1% in the previous year. But for seasonal workers, income growth dropped sharply, from 17.1% during this period to 5.2%. Goyal also said some companies have reversed earlier price increases that led to higher costs and that supply-side measures by the government have limited short-term price increases. Furthermore, India’s major oil companies can pass on the benefits of lower oil prices to consumers.
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