India’s consumer price inflation (CPI) is expected to remain above 5 per cent for the rest of 2024, according to a recent report by the State Bank of India (SBI). The report highlighted that despite a significant decline in vegetable and protein prices in November, the persistence of food consumption in rural areas is contributing to inflationary pressures.
It added that rural economies, where food accounts for a significant share of consumption, continue to display resilience, which could prolong the stickiness of food-related inflation.
“CPI is expected to remain above 5.0 per cent in the remaining months of 2024 even though vegetable/protein prices shows huge moderation in November.. with the bulk of rural populace still having food as the primary source of consumption” said the report.
As per the official data, country’s retail inflation was at 6.21 per cent in October, breaching the Reserve Bank of India’s 6 per cent upper tolerance level. The inflation surged to a 14-month high of 6.21 per cent. This was primarily driven by a sharp increase in food prices, which rose by 261 basis points over the past three months. Core CPI, which excludes food and energy prices, also increased moderately to 3.76 per cent in October compared to 3.54 per cent in September.
The report noted that around 40 per cent of India’s CPI is influenced by imported inflation. Given this dependency, the Reserve Bank of India (RBI) is unlikely to allow a full pass-through of exchange rate volatility to prevent further inflationary pressures.
It said “Further, approx. 40 per cent of CPI is dictated by imported inflation and hence RBI can’t allow fully pass-through of Exchange rate volatility” The report also highlighted the role of government support in sustaining rural consumption.
The increased income from Direct Benefit Transfers (DBT) has enhanced the purchasing power of rural households, boosting the consumption of essential goods and services. The share of the bottom 40 per cent of DBT beneficiaries in the spending quantile has risen by 1.85 times, according to the report.
However, while the rural economy remains robust, it has not been able to fully offset the slowdown in urban demand. The report attributed this to the depletion of excess savings accumulated during the pandemic, which had previously bolstered urban consumption. Overall, the report highlighted a mixed economic scenario, with rural resilience mitigating some inflationary impacts even as urban demand weakens.
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