MUMBAI: Presenting a sobering picture on the inflation front, consumer prices trending at the lowest levels since the pandemic, the economic survey is positive in its outlook on the prices front for short-term, while calling for a clear vision to tame and retain lower prices for the long term. After averaging at 5.4 per cent for FY24 and trending under 5 per cent since February consumer prices rose to 5.08 per cent in June as food prices were on fire due to the heatwaves conditions and delayed arrivals of the monsoons. Going forward, the survey says the RBI projects inflation to fall to 4.5 per cent in FY25 and to 4.1 per cent in FY26, assuming normal monsoons and no external or policy shocks. Similarly, the IMF forecasts inflation of 4.6 per cent in 2024 and 4.2 per cent in 2025 for the global economy. The survey credits the lowest inflation print at 5.5 per cent average for the last fiscal to the timely government interventions and the Reserve Bank’s price stability measures. Stating that policy interventions yielded positive results in taming inflation, the survey notes that the government slashing prices of fuels like cooking gas, petrol and diesel has helped it bring down retail fuel inflation which stayed low in FY24 on the back of a massive drop in global energy prices. Our policies adeptly steered through challenges, ensuring price stability despite global uncertainties, says the survey. Noting that fall in retail inflation in FY24 was driven by a fall in core inflation of both goods and services, the survey said core services inflation eased to a nine-year low in FY24; at the same time, core goods inflation also declined to a four-year low. In FY24, core consumer durables inflation declined due to an improved supply of key input materials to industries. This was a welcome change after the progressive increase in consumer durables inflation between FY20 and FY23.Stating that the transmission of the monetary policy to core inflation was unambiguous, the survey says in response to rising inflationary pressure, the RBI increased the repo rate gradually by 250 basis points since May 2022. Consequently, core inflation declined by around four percentage points between April 2022 and June 2024.Blaming the higher food prices on adverse weather conditions and global pain, the survey says the agriculture sector faced challenges due to extreme weather events, depleted reservoirs, and crop damage, which impacted farm output and food prices. As a result, food inflation stood at 6.6 per cent in FY23 and increased to 7.5 per cent in FY24.Unfavorable weather conditions in FY24 constrained food production. Tomato prices rose due to region-specific crop disease, early monsoon rains, and logistical disruptions. Onion prices spiked because of rainfall during the last harvest season affecting rabi onion quality, delayed sowing of Kharif onion, prolonged dry spells impacting Kharif production, and trade-related measures by other countries. “However, the government took appropriate administrative actions, including dynamic stock management, open market operations, subsidised provision of essential food items and trade policy measures, which helped to mitigate food inflation,” says the survey. Attributing the higher inflation in most states to a wider rural-to-urban inflation gap, the survey says in FY24, most states saw falling inflation rates, with 29 of 36 states recording rates below 6 per cent – consistent with the overall decline in all-India average retail inflation compared to FY23.States with elevated food prices tend to experience higher rural inflation due to the greater weightage of food items in the rural consumption basket. Also, inter-state variation in inflation is more pronounced in rural areas than in urban areas. That apart states experiencing higher overall inflation tend to have a wider rural-to-urban inflation gap, with rural inflation surpassing urban prices.
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