Last mile of the inflation fight will be a tough battle, RBI warns

With rain deficit in India closing at a faster pace amidst a highly cyclone-skewed distribution, the Reserve Bank of India (RBI) in its latest monthly Bulletin said that the fight against inflation is far from over and monetary policy has to stay the course to align inflation with the target in this last leg of a strenuous journey.

"The narrative about inflation is coalescing around the view that while the disinflation was achieved in about a year as in earlier inflation episodes, the ‘last mile’ in the descent to the target may pose the biggest challenge," the RBI said.

In its State of the economy article, the apex bank said that food price spikes are very typical with the onset of the monsoon. It drove up headline inflation in June, further strengthening the monetary policy committee’s (MPC) view on a hawkish stance.


Headline inflation increased to 4.8 per cent in June 2023 from 4.3 per cent in May primarily on account of an increase in food inflation, which stood at 4.6 per cent in June from 3.3 per cent in May due to spike in prices of spices and pulses.

While global growth momentum appears to be stalling, manufacturing and services activity in the country continued to remain in expansion though some sequential moderation was witnessed in June from a near 13-year high in April and May, the article added.

Like in June, the article also said that consumer spending continued to be hamstrung by increased price pressures. Lower spending was not only observed in personal care and confectionary but also on beverages due to unseasonal rains.

However, with the festival season nearing, it is expected that down trending food inflation will revive spends in the second quarter of FY24.

The RBI's economic activity index (EAI) nowcasts GDP growth for Q1 FY24 at 7.8 per cent as it expects supply chain pressure for India to remain below its historical average, driving growth impulses.