The Economic Division of India's Finance Ministry, in its Monthly Economic review for february 2024, highlighted that retail inflation has remained within the Reserve bank of India's (RBI) tolerance band of 2 to 6 percent for six consecutive months. Notably, the retail inflation rate for february stood at 5.1 percent. The review emphasized a decline in core inflation, attributed to continuous price reductions.
However, the Finance Ministry identified the red Sea Crisis as the primary threat to inflation and economic growth in India. The review underscored that retail inflation has consistently adhered to the RBI's tolerance band, primarily due to a decrease in non-food and non-fuel (core) inflation. The average inflation rate from april to february in the fiscal year 2023-24 was reported at 5.4 percent, lower than the 6.8 percent recorded during the same period in the previous fiscal year.
Despite fluctuations in certain food prices, inflation has largely remained below 6 percent, except for July and august 2023. In terms of food production, the Finance Ministry anticipated a rise, with a projected increase of 1.3 percent in wheat production and 0.9 percent in Kharif rice production for the fiscal year 2023-24. Additionally, a 0.9 percent increase in arhar dal production compared to the previous year was expected to contribute to a reduction in food inflation.
The Ministry expressed optimism about a positive inflation outlook in the forthcoming months. However, the report cautioned about the red Sea Crisis impacting global food commodity prices. Approximately 80 percent of India's merchandise trade with europe traverses the red Sea, encompassing crucial commodities such as crude oil, auto ancillaries, chemicals, textiles, and petroleum steel.
Disruptions in trade routes due to the crisis could lead to increased freight costs, insurance premiums, and extended transit times, potentially resulting in expensive imported goods. The looming threat of rising crude oil prices due to trade disruptions poses a risk of inflation escalation, which could adversely affect economic growth.
