India’s fight against inflation far from over

By Swati Bhat and Siddhi Nayak

MUMBAI (Reuters) – Food price spikes in India, typical at the onset of the monsoon, drove up headline inflation in June, corroborating the monetary policy committee’s (MPC) view that the fight against inflation is far from over, the Reserve Bank of India said on Monday.

“Monetary policy has to stay the course on the arduous last leg of the journey to align inflation with the target,” the RBI said in its State of the Economy article, published as a part of its monthly bulletin.

Surging food prices accelerated India’s annual retail inflation rate to 4.81% in June, snapping four months of easing and erasing any chance of a rate cut this year.

However, the rain deficit in India is rapidly closing amidst a highly cyclone-skewed distribution, while manufacturing and services activity remains in expansion, albeit with some sequential moderation in June, the RBI said.

On the global growth front, it said momentum appears to be stalling, especially in manufacturing and investment, since though headline inflation was moderating, core inflation was staying stubborn.

It, however, reiterated its confidence in India’s prospects.

“The Indian economy is poised to be the fastest growing major economy in the world despite some sequential moderation in economic activity in June,” the central bank said.

High-frequency services sector indicators for June attest to the resilience of overall economic activity, the RBI wrote, urging the private sector to take advantage.

“A window is opening up for the private sector to scale up on creating capacities in both manufacturing and services, and this opportunity must be grasped.”