With some relief in food prices, a Finance Ministry report on Thursday has expressed optimism on the retail inflation outlook. This assessment is critical as the Monetary Policy Committee (MPC) is meeting early next month. Retail inflation, based on Consumer Price Index (CPI), stood at 3.7 per cent in August, with core inflation (excluding food and fuel from headline inflation) was steady at 3.4 per cent.

Meanwhile, the Monthly Economic Review (MER), prepared by the Economic Affairs Department, Ministry of Finance, appears to be unperturbed by the lower economic growth in the April-June quarter and hopeful of steady growth in the remaining quarters of the current fiscal year (FY25).

“While replenished reservoir levels and higher kharif sowing acreage augur well for food price outlook, the effect of the skewed spatial distribution of the monsoon warrants monitoring,” the latest issue of MER noted on Thursday.

Further, it said that, the outlook for inflation trajectory is positive as benign core inflation, good monsoon and healthy sowing progress of Kharif crops are likely to keep inflation under control.

The MER noted lifting of the minimum export price restrictions for onions and basmati rice imposed last year to alleviate food inflation. In an effort to further stabilise wheat prices, the stockholding limits on wheat traders, wholesalers and processors have been lowered to increase the market supply and prevent hoarding by large entities.

Economy grows

The economy grew by 6.7 per cent during April-June quarter (Q1) of FY25. The MER said that growth in all major non-agricultural sectors stayed well above 5 per cent in Q1, indicating broad-based expansion. With advancing monsoon, kharif sowing has also picked up, brightening prospects of agricultural production. “As public expenditure picks up and the rural economy strengthens, the overall growth is expected to remain steady in the subsequent quarters,” the review noted.

According to the report, mirroring the strong build-up in productive activity, major components of aggregate demand — including private consumption, fixed investment and exports — have picked up pace. Owing to the Lok Sabha elections during April-June, the general government expenditure is gathering pace only gradually in the current financial year. Despite this, “the overall investment grew 7.5 per cent in Q1, indicating the strengthening of the private investment cycle,” it said.

Taking cue from most high-frequency indicators on the supply side, the report noted continuing economic expansion in the current quarter (July-September). “Steady growth in GST collections, expansionary trends in purchasing managers’ indices and growth in air and port cargo indicate vigorous economic activity,” it said. It may be noted that e-way bill generation rose to all-time high in August, 2024, to reach 10.54 crore, signalling demand boost-up on account of festivals.

Analysing recent trends, the report opined that these indicate strong foundations of macroeconomic stability in India with steady growth, investment, employment and inflation trends, a strong and stable financial sector, as well as, a resilient external account including comfortable foreign exchange reserve position. “A challenge on the macroeconomic front is of navigating the continuing uncertainty in global economic prospects. We will likely encounter a cycle of policy rate cuts globally, amid fears of a recession in advanced economies and continuing geopolitical conflicts,” the report said.

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