India's risk of stagflation, a blend of low GDP growth and high inflation, remains minimal at 3%, according to the RBI's latest bulletin. The report points out stabilizing factors amidst rising inflation and underscores the country's current economic resilience.
Mumbai : India's risk of facing stagflation, a challenging economic condition characterized by both slow GDP growth and high inflation, remains very low at a mere 3 percent probability, according to the Reserve Bank of India's (RBI) latest Bulletin released on Thursday.
The article authored by a team led by RBI Deputy Governor Michael Debabrata Patra, discusses the current economic landscape in the country. It notes that while inflation has seen a significant increase, factors such as domestic consumption and fixed investment are balancing out the negative impact of reduced exports.
The report highlights a surge in inflation during June, which carried over into July due to unforeseen spikes in tomato prices leading to higher prices for other vegetables. Although core inflation witnessed a decrease, the headline inflation is projected to average above 6 percent in the second quarter.
The ongoing COVID-19 pandemic and geopolitical tensions like the Ukraine conflict have triggered concerns of stagflation globally. However, the article emphasizes that India's risk of encountering stagflation remains low given the easing financial conditions, stable exchange rates between the Indian Rupee and US Dollar, and consistent domestic fuel prices.
The RBI makes it clear that the opinions expressed in the article solely belong to the authors and not to the Reserve Bank itself. It cites historical evidence of India experiencing instances of high inflation coupled with low growth in the past, especially during crises such as the Asian Crisis (1997-98), Global Financial Crisis (2007-09), taper tantrum (2013), and the ongoing COVID-19 pandemic.
The report points out that despite such past occurrences, the probability of India encountering stagflation currently stands at a minimal 3 percent. This conclusion is drawn considering factors like improving financial conditions, stable currency exchange rates, and consistent fuel prices within the country.
The article also observes the recent trends in food prices. Prices of cereals and pulses continued to rise in August, while edible oil prices showed a decline in July and August. Tomato prices, which had risen in August, are displaying signs of a slight retreat in more recent data. Similarly, onion and potato prices also experienced sequential increases.
Earlier this month, the RBI's Monetary Policy Committee (MPC) had maintained its economic growth forecast for the fiscal year 2023-24 at 6.5 percent, while revising its inflation projection upwards due to price surges in the food category of the Consumer Price Index (CPI).
In conclusion, despite inflation surges, India's probability of experiencing stagflation is assessed to be low, aided by a stable financial environment and consistent domestic factors.
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| Low Stagflation Risk in India Despite Inflation Uptick, says RBI's Latest Bulletin |
Mumbai : India's risk of facing stagflation, a challenging economic condition characterized by both slow GDP growth and high inflation, remains very low at a mere 3 percent probability, according to the Reserve Bank of India's (RBI) latest Bulletin released on Thursday.
The article authored by a team led by RBI Deputy Governor Michael Debabrata Patra, discusses the current economic landscape in the country. It notes that while inflation has seen a significant increase, factors such as domestic consumption and fixed investment are balancing out the negative impact of reduced exports.
The report highlights a surge in inflation during June, which carried over into July due to unforeseen spikes in tomato prices leading to higher prices for other vegetables. Although core inflation witnessed a decrease, the headline inflation is projected to average above 6 percent in the second quarter.
The ongoing COVID-19 pandemic and geopolitical tensions like the Ukraine conflict have triggered concerns of stagflation globally. However, the article emphasizes that India's risk of encountering stagflation remains low given the easing financial conditions, stable exchange rates between the Indian Rupee and US Dollar, and consistent domestic fuel prices.
The RBI makes it clear that the opinions expressed in the article solely belong to the authors and not to the Reserve Bank itself. It cites historical evidence of India experiencing instances of high inflation coupled with low growth in the past, especially during crises such as the Asian Crisis (1997-98), Global Financial Crisis (2007-09), taper tantrum (2013), and the ongoing COVID-19 pandemic.
The report points out that despite such past occurrences, the probability of India encountering stagflation currently stands at a minimal 3 percent. This conclusion is drawn considering factors like improving financial conditions, stable currency exchange rates, and consistent fuel prices within the country.
The article also observes the recent trends in food prices. Prices of cereals and pulses continued to rise in August, while edible oil prices showed a decline in July and August. Tomato prices, which had risen in August, are displaying signs of a slight retreat in more recent data. Similarly, onion and potato prices also experienced sequential increases.
Earlier this month, the RBI's Monetary Policy Committee (MPC) had maintained its economic growth forecast for the fiscal year 2023-24 at 6.5 percent, while revising its inflation projection upwards due to price surges in the food category of the Consumer Price Index (CPI).
In conclusion, despite inflation surges, India's probability of experiencing stagflation is assessed to be low, aided by a stable financial environment and consistent domestic factors.
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