MUMBAI: Reserve Bank of India (RBI) in its August monthly bulletin has said that inflation in the second quarter of 2023, which is for July-September is set to average more than 6%.

The RBI’s 'State of the Economy' report released in the August bulletin articulates that the increase in vegetable prices has extended into the first half of August, prompting expectations of headline inflation averaging 'well above 6% in the second quarter. 

"The incidence of supply shocks was not over and the elevation in vegetable prices had extended into the first half of August, accordingly, headline inflation is expected to average well above 6% in the second quarter," the report stated.

The report further said, "Stable prices for consumers assured supplies and remunerative proceeds for farmers will follow when these reforms lead to efficiency and productivity gains while preserving the quality of output and building up insulation against food inflation from climatic events."

The report further said that the economy's vulnerability to recurring vegetable price shocks, especially during the monsoon period, underscores the need for comprehensive reforms within perishable supply chains. These reforms would encompass transportation networks, warehousing, storage technologies, and value-addition processes to mitigate the extent of these price fluctuations.

According to the central bank's views, stable prices for consumers assured supplies and remunerative proceeds for farmers will follow when these reforms lead to efficiency and productivity gains while preserving the quality of output and building up insulation against food inflation from climatic events.

The report conveyed that the shadow of El Nino looms over the second half of the year and the outcome for food inflation in the rabi season. Referring to production cuts by key OPEC+ suppliers, it said that yet another upside risk was the outlook on crude oil prices that is marred by 'engineered' supply shortfalls.

The report comes days after the government released its July inflation data, placing headline inflation for the month at 7.4%, and says that the lingering impact of supply shocks is far from over. The National Statistics Office (NSO) data released last Monday showed retail inflation was estimated to have accelerated sharply to a 15-month high of 7.44% in July. 

In July, consumer price index (CPI)-based inflation rose to a 15-month high of 7.44 per cent from 4.81 per cent in June driven primarily by an increase in prices of vegetables, cereals, pulses, spices and milk and products. About a week ago the RBI’s Monetary Policy Committee had forecast inflation to average 6.2% in the current July-September quarter.