NEW DELHI: The Reserve Bank of India (RBI) has stated in a report that the risk of stagflation, which refers to a period of weak economic growth and high inflation, remains low in India despite a significant rise in prices. The central bank’s monthly bulletin also highlights that the Indian economy is gaining momentum in the second quarter, although inflation is expected to continue averaging above the RBI’s comfort zone of 6%. The study conducted by the RBI reveals that there is only a 3% probability of stagflation in India, attributed to easing financial conditions, stability of the INR/USD exchange rate, and steady domestic fuel prices.
The report comes as India’s retail inflation in July surged to 7.44% from 4.87% in June, primarily driven by soaring prices of tomatoes, vegetables, and other food items. High-frequency food price data for August indicates that prices of cereals and pulses have continued to rise this month. Tomato prices have also increased, although recent data suggests some pullback in prices. Onion and potato prices have seen sequential upticks. While retail selling prices of petrol and diesel in the four major metros have remained steady in August so far, kerosene prices have increased sharply, while LPG prices have been unchanged.
Despite a moderation in core inflation in July, the RBI expects headline inflation to average well above 6% in the second quarter. In response to the rising prices, Prime Minister Narendra Modi has announced that the government will be implementing additional measures to tackle inflation and minimize the burden of price rises on the people. With key state assembly elections approaching and the Lok Sabha elections scheduled for next year, the government is making efforts to control inflation.
In conclusion, the RBI’s report indicates that the risk of stagflation in India remains low, with only a 3% probability. Although inflation has been on the rise, the central bank expects the Indian economy to gather momentum in the second quarter. The government’s measures to tackle inflation will be crucial in minimizing the impact of price rises on the people.
- The risk of stagflation in India remains low, according to the RBI’s report.
- The Indian economy is gathering momentum in the second quarter.
- Inflation is expected to continue averaging above the RBI’s comfort zone of 6%.
- There is a 3% probability of stagflation in India.
- Retail inflation in July rose to 7.44% due to soaring food prices.
- Prices of cereals, pulses, and tomatoes have continued to increase in August.
- Onion and potato prices have also seen sequential upticks.
- Retail selling prices of petrol and diesel have remained steady, while kerosene prices have increased.
- The RBI expects headline inflation to average well above 6% in the second quarter.
- The government will be implementing additional measures to tackle inflation.
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