Retail inflation at 4 month low
Due to falling prices of vegetables, retail inflation has come down to 4.87% in October. This is the lowest level of retail inflation in last 4 months. It was 5.02% in September. At the same time, inflation of food items has come down from 6.62% to 6.61%.
The decline in inflation will provide extra cushion to the Monetary Policy Committee (MPC) in its policy interest rate review. After increasing the rate by 2.50%, the committee has kept it steady four times, and is expected to do the same at its meeting next month.
RBI’s range regarding inflation is 2%-6%. Ideally, RBI would like retail inflation to remain at 4%. However, economists believe that vegetable prices remain a risk due to onion. This may lead to increase in inflation in the coming months.
Inflation rate forecast for financial year 2024 is 5.4%
While giving information about the RBI monetary policy meeting held in October, the RBI Governor had said that the inflation estimate for the financial year 2024 has been maintained at 5.4%. In the previous meeting it was increased from 5.1% to 5.4%.
How does RBI control inflation?
To reduce inflation, the flow of money (liquidity) in the market is reduced. For this, Reserve Bank of India (RBI) increases the repo rate. Like RBI had decided not to increase the repo rate in April, June and July. Earlier, RBI had increased the repo rate 6 times consecutively. RBI had also cut inflation estimates.
How does inflation increase and decrease?
The rise and fall of inflation depends on the demand and supply of the product. If people have more money they will buy more things. Buying more things will increase the demand for things and if the supply is not as per the demand, the price of these things will increase.
In this way the market becomes vulnerable to inflation. Simply put, excessive flow of money or shortage of goods in the market causes inflation. Whereas if demand is less and supply is more then inflation will be less.
