The persistent rise in food prices over the past year threatens to spill over into other components of inflation like wages and rent, warned analysts at the Reserve Bank of India in their recent assessment.
In its monthly bulletin, the central bank noted that the commonly held belief that food price shocks are only temporary does not align with actual trends witnessed in the country. The sustained increase in the cost of food over an extended period indicates it is more than a short-term fluctuation.
According to the assessment, prepared by RBI Deputy Governor Michael Patra and other officials, the accumulation of pressures from costlier food items endangers the overall outlook for inflation. If allowed to seep into other segments, it could undermine efforts to bring general price levels back to the target zone.
Food inflation, a major contributor to retail inflation, rose to 8.4% in June – its highest in over a year. Costs have been driven higher by items like cereals, pulses, edible oils and vegetables over the past few months. High-frequency market data also point to further increases in July.
While core inflation has moderated on policy support, elevated household expectations suggest food price pressures still dominate perceptions. This disconnect between falling key rates and steady public sentiment poses a hurdle to policymakers.
To protect price stability, authorities will need to combine monetary steps with adequate supply management. Only a balanced strategy addressing both demand and supply-side issues can anchor inflationary expectations over the medium term. Otherwise, the goal of sustainable low inflation may remain out of reach.
