CALMING INFLUENCE, Pg 10.

Key Highlights:

• Retail inflation marginally increased to 2.07% in August, according to the National Statistics Office.
• Inflation has averaged 1.84% in the second quarter (July-August), below the RBI’s projection of 2.1%.
• Food prices have fallen, with the consumer food price index moving into deflation in June, July, and August.
• SBI economists estimate that recent GST rate cuts will moderate inflation by 65-75 basis points over FY26-27.

Detailed Insights:

• The moderation in inflation is primarily due to declining food prices, particularly in vegetables and pulses.
• Core inflation, excluding volatile food and fuel, remains stable across categories like clothing, household goods, and education.
• Excess rainfall's impact on crops is expected to be offset by rabi crops, keeping food inflation under control.
• The GST rate rationalization, effective from September 22, is expected to further moderate inflation.
• While inflation is projected to remain low, the MPC may hesitate to loosen policy further due to strong economic growth.
• The effects of tariffs imposed by the US could impact the economy in the coming months, despite positive signals on the India-US trade deal.

Key Concepts Involved:

• Retail Inflation: The change in the price of a basket of goods and services that are typically purchased by households.
• Core Inflation: Inflation that excludes volatile components like food and fuel to provide a more stable measure.
• Monetary Policy Committee (MPC): A committee that decides the policy interest rate to control inflation.