The contribution of F&B category to headline inflation increased to 60.3 per cent during 2023-24 from 46 per cent a year ago, as per the report.
It further stated that the food inflation remains vulnerable to recurring supply shocks which are preventing a quicker alignment of headline inflation with the target (4 per cent).
In FY24, the headline inflation moderated by 1.3 percentage points on an annual average basis to 5.4 per cent. The RBI linked this softening to the easing of supply chain pressures, broad-based moderation in core inflation and early indications of an above normal southwest monsoon.
However, it said that the increasing incidence of climate shocks imparts considerable uncertainty to the food inflation and overall inflation outlook.
“Low reservoir levels, especially in the southern states and the outlook of above normal temperatures during the initial months of 2024-25 need close monitoring. The volatility in international crude oil prices, the persisting geopolitical tensions and elevated global financial market volatility also pose upward risk to the inflation trajectory,” said the RBI.Taking into account these factors, the central bank projected the CPI inflation for 2024-25 at 4.5 per cent with risks evenly balanced.
Is global inflation still a concern?
In its latest report, the RBI said that the global inflation is likely to moderate to 4.5 per cent from 5.9 per cent in 2024, aided by restrictive monetary policy stances and lower international commodity prices.
India’s central bank called the last mile of disinflation sticky, and said that it is turning out to be challenging, as stated earlier.
Recurrent supply shocks from adverse climate events and geopolitical hostilities pose upside risks to the disinflation process, it said.
“Central banks in major AEs expect inflation to approach targets gradually and have accordingly indicated rate cuts beginning this year. Upward inflation surprises in the recent prints are, however, leading to a continuous repricing in market expectations and generating significant volatility in key financial markets,” it further added.
