Retail inflationary pressures expected to ease with fresh Kharif arrivals: Finance Ministry

Retail inflationary pressures expected to ease with fresh Kharif arrivals: Finance Ministry
The current retail inflationary pressures are expected to ease with fresh Kharif arrivals and a pass-through of lower input costs to consumers - also affirmed by RBI's inflation projections for the next two quarters, the monthly economic review for October compiled by the department of economic affairs said.

On inflation, the report by the department of economic affairs said domestic prices of some food items have gone up in the wake of the rise in international prices. India's grain availability was impacted by the untimely heatwaves and deficiency of the southwest monsoon in the current year. However, export restrictions have ensured that the country's needs are fully met.

The department of economic affairs in its report said India's food security has remained intact. Sharp rise in tractor sales in September and October also point towards improved sentiments and an expected increase in crop area sown.

The report also indicated the UNDP Multi-Dimensional Poverty Index (MPI) released in October 2022 showed 41.5 crore people exiting multidimensional poverty in India during the last 15 years. India's success in reducing poverty has also contributed to a decline in poverty in South Asia with South Asia no longer remaining the most multi-dimensionally poor region.

The report also deals with a global outlook, inflation, food security, poverty, health and employment and World and monetary policy.


On domestic inflation, the report said consumer price index (CPI) inflation was largely driven by food inflation with major contributors being imported food items like oil and fats during the first five months of 2022. Since June 2022 however, domestic seasonal factors have increased the inflation of vegetables, cereals and their products, which have contributed to elevating food inflation.

On the global outlook, the department of economic affairs said the prospect of a global economic slowdown had led to an outflow of portfolio investments from most countries into safe-haven US treasuries. This, combined with higher policy rates deployed by the Federal Reserve to counter inflation, has significantly strengthened the US dollar vis-a-vis other currencies.

According to the report, the depreciation of most currencies has also led to a global drawdown of foreign exchange reserves to protect their values and prevent volatility in the foreign exchange market.

On food security, the report said global food security has deteriorated and India may turn out to be an outlier with proactive and pre-emptive government interventions.

2022 brought to the forefront not only the issues of macroeconomic and geopolitical risks but also the vulnerability and interconnectedness of the global food system to shocks. The geopolitical conflict and climatic events have moved the focus to the issues of fragility and over-dependence on a few countries or regions for global food security.

The report said, "Russia and Ukraine are among the most important producers of essential agricultural commodities, including wheat, maize, sunflower seeds and inputs like fertilisers. Together with other countries bordering the Black Sea, they constitute the world's breadbasket."

The Black Sea serves as a critical supply and transit hub to move food commodities from these countries to the rest of the world. As the conflict choked the hub, the movement of food items from these countries to the rest of the world got affected, threatening people's livelihoods directly/indirectly connected with the food business in the Black Sea region.

Rising economic activity has led to a decline in the unemployment rate, the department of economic affairs wrote in the report. With the recovery in economic activities across sectors, the overall employment situation has also improved, overcoming the impact of the pandemic.

It added that the Periodic Labour Force Survey (PLFS) shows the urban unemployment rate for people aged 15 years and above declining from 12.6 per cent in the quarter ending June 2021 to 7.6 per cent one year later (quarter ending June 2022). This is accompanied by an improvement in the labour force participation rate (LFPR) as well, reflecting that by the time the current year was one-quarter over, the economy had come out of the grip of the Covid-19-induced slowdown, according to the monthly review.

In a world where monetary tightening has weakened growth prospects, the finance ministry said India appears well-placed to grow at a moderately brisk rate in the coming years on account of the priority it accorded macroeconomic stability.

It added the financial system stress in the second decade of the millennium, a consequence of the lending boom witnessed in the first decade-plus, is now behind us. It also added that private sector financial and non-financial balance sheets are healthy and incipient signs of a new personal sector capital formation cycle are visible.

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