India's Inflation Tamed: RBI Chief Cites Food Prices, Base Effect for Low CPI
Overview
India's retail inflation has remained below the Reserve Bank of India's target range for four consecutive months, defying global economic pressures. RBI Governor Sanjay Malhotra explained that persistently low food prices, driven by a high base effect from last year, alongside stable global commodity prices and effective supply-side measures, are the primary drivers. Malhotra projects a gradual uptick but anticipates inflation to remain within a comfortable zone.
India's Inflation Trend Defies Global Headwinds
India has successfully maintained its retail inflation below the Reserve Bank of India's (RBI) target band of 2%-6% for four consecutive months, a notable achievement amid global economic uncertainty and geopolitical tensions.
Governor Cites Key Factors
RBI Governor Sanjay Malhotra attributed the subdued inflation primarily to a combination of factors. "Food prices have remained low due to a high base effect," Malhotra stated in an interview, explaining that prior periods of elevated food inflation make current levels appear lower by comparison. This statistical phenomenon, coupled with moderating global commodity prices, has significantly contributed to the disinflationary trend.
Supply-Side Strength and Projections
Malhotra emphasized that the current low inflation is largely a "supply-side phenomenon rather than a demand-side phenomenon." He indicated that inflation is expected to gradually rise as the base effect diminishes. The central bank forecasts retail inflation at 2.9% for the January-March quarter of FY26, projecting an increase to 3.9% in Q1 FY27 and 4% in Q2 FY27. Core inflation currently stands at 4.6%, though excluding precious metals, it falls to a lower 2.3%.
Consumer Perception and Policy Framework
Consumer surveys suggest that the public is beginning to feel the impact of lower inflation, with perceived inflation coming down from previous highs. Governor Malhotra also highlighted the role of India's flexible inflation targeting regime. He noted that since its implementation, inflation levels have generally declined, suggesting the policy framework, alongside government supply-side actions, has been instrumental in managing price stability.
