## Inflation Remains Above 4%, But Economic Activity Shows Signs of Improvement
India's retail inflation remained above 4% for the entire fiscal year 2024, with food inflation easing slightly to 4.85% in March 2024. However, economic activity seems to be on a more stable footing, with factory output, as measured by the Index of Industrial Production (IIP), rising to a four-month high of 5.7% in February 2024.
This data, released on April 7, 2024, follows the Reserve Bank of India's (RBI) first bi-monthly monetary policy for FY25 on April 5, 2024. The RBI projected robust growth prospects with GDP growth estimated at 7% for the current fiscal year. However, it remained vigilant over inflation, projecting it at 4.5% for the full fiscal year and 4.9% for the first quarter.
RBI Governor Shaktikanta Das noted that inflation, which peaked at 7.8% in April 2022, has shown signs of easing. He expressed hope that inflation would continue to decline and remain stable.
The RBI's monetary policy committee is mandated to target retail inflation at 4% with a variation band of 2% on both sides.
Food inflation remained a concern in March 2024, with consumer food price index-based inflation remaining high at 8.52%, only marginally lower than the previous month's 8.66%. Retail inflation in the food and beverage basket also remained high at 7.68% in March 2024.
Analysts believe that the inflation data is in line with market expectations and is unlikely to significantly impact the RBI's policy decisions. They expect the RBI to maintain its current accommodative stance, with no rate cuts anticipated in the near term.
However, they caution that the ongoing uptrend in international crude oil prices could pose a risk to the inflation outlook in the near term. The extent of the impact would depend on the pass-through to retail fuel prices.
Overall, the economic outlook for India appears to be improving, with signs of growth in industrial production and easing inflation. However, the RBI remains cautious and will continue to monitor inflation closely before making any further policy decisions.