Leading ratings and economic research firm CRISIL has projected that inflation is expected to average 4.5 percent for the current financial year. The firm bases its forecast on the assumption of a normal monsoon, which is anticipated to alleviate food inflation pressures, even as non-food inflation may experience a slight increase but remains subdued due to stable commodity prices.
“Assuming a normal monsoon, we expect food inflation to soften, while non-food inflation could see an uptick but is expected to remain soft on the back of benign commodity prices,” CRISIL stated.
In its recent report, CRISIL highlighted that the consumer price index (CPI) inflation slightly decreased to 4.75 percent in May from 4.8 percent in April 2024. The report noted that while non-food categories helped lower the headline inflation, the persistent rise in food prices, particularly cereals and pulses, remains a concern.
“Non-food categories pulled down the headline inflation, but what is worrying is the relentless inching up of food categories, cereals and pulses,” the report indicated.
Food inflation has remained above 8.5 percent for the past four months, providing some relief from non-food inflation, CRISIL observed. The firm also suggested that there could be a rebalancing in domestic demand, with rural consumption beginning to catch up with urban demand. The expectation of an above-normal monsoon is seen as a positive factor for rural incomes.
The report also highlighted potential challenges for the urban economy, which might face constraints due to tighter credit conditions. Bank retail credit growth has decelerated in recent months, and regulatory measures to limit bank lending to non-banking financial companies (NBFCs) are expected to impact consumer loans.
“Notwithstanding healthy government capital expenditure, it is expected to be lower than the previous year with fiscal consolidation being pursued,” the report noted.
CRISIL warned that slower global growth could limit the potential increase in goods exports. Consequently, the firm expects GDP growth to decelerate to 6.8 percent this fiscal year, down from 8.2 percent in the previous year.