RBI governor Shaktikanta Das on Friday said inflation — the elephant in the room — has now gone out for a walk and appears to be returning to the forest.

"Two years ago, around this time, when CPI inflation had peaked at 7.8% in April 2022, the elephant in the room was inflation. The elephant has now gone out for a walk and appears to be returning to the forest," Das says while announcing the monetary policy statement.

"We would like the elephant to return to the forest and remain there on a durable basis. In other words, it is essential, in the best interest of the economy, that CPI inflation continues to moderate and aligns to the target on a durable basis," Das says, adding that the central bank's task remains unfinished till this is achieved.

The success in the disinflation process so far should not distract us from the vulnerability of the inflation trajectory to the frequent incidence of supply-side shocks, the RBI governor says. "Our effort is to ensure price stability on an enduring basis, paving the way for a sustained period of high growth," he adds.

While inflation has come down significantly to 5.1% in February, it remains above the 4% target. Food inflation continues to exhibit considerable volatility impeding the ongoing disinflation process, cautions Das.

"The strong growth momentum, together with our GDP projections for 2024-25, give us the policy space to unwaveringly focus on price stability," he says.

Headline inflation has eased to 5.1% during January and February 2024 from 5.7% in December 2023, with core inflation declining steadily over the past nine months. Food inflation pressures, however, accentuated in February.

Food price uncertainties continue to weigh on the inflation trajectory going forward, the RBI governor warns. “The tight demand supply situation in certain categories of pulses and the production outcomes of key vegetables warrant close monitoring, given the forecast of above normal temperatures in the coming months,” he says.

Meanwhile, a record rabi wheat production is expected to help temper price pressure and replenish the buffer stocks.

“Cost push pressures faced by firms are seeing an upward bias after a period of sustained moderation. Deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March. Notwithstanding the cut in petrol and diesel prices in mid-March, the recent uptick in crude oil prices needs to be closely monitored,” says Das.

Continuing geopolitical tensions also pose an upside risk to commodity prices and supply chains. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5% with Q1 at 4.9%, Q2 at 3.8%, Q3 at 4.6% and Q4 at 4.5%, says the RBI governor.

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