Controlling inflation, while boosting household consumption to support growth remained the main concern at the most recent Monetary Policy Committee (MPC) meeting held between October 4-6, the minutes of which were released on Friday.
MPC member Professor Jayanth R. Varma in his statement wrote that since the August meeting, the risks to inflation had marginally increased and “a small shortfall in rainfall coupled with the spatio-temporal dispersion could cause volatility in food prices.” He however noted that this is likely to cause “a few short lived inflation spikes rather than a sustained rise in inflation”.
Highlighting that the outlook for growth had improved modestly because of consumer confidence as indicated in the RBI surveys, Mr. Varma opined out that this must be seen in the light of household savings data released by the RBI in September.
“Data shows that consumers have incurred financial liabilities and reduced savings to support consumption. This willingness to consume at the cost of savings is important because it is household consumption that has been propping up the economy in the face of headwinds from fiscal consolidation, weak external demand and tepid capital investment,” Prof. Varma observed.
“It is possible that this consumer confidence could become a self fulfilling prophecy as robust consumption demand stimulates growth, generates income and strengthens household balance sheets,” he mentioned.
“Even if that does not happen, global experience suggests that a debt fuelled consumption boom can last several years before petering out. Either way, the medium term growth outlook looks somewhat stronger than it did during the last meeting, though several headwinds still remain,” he pointed out.
Reiterating his emphasis on curbing inflation, MPC member and RBI Deputy Governor Michael Debabrata Patra stated that without price stability, growth cannot sustain and the benefits of expanding Gross Domestic Product and employment would be frittered away by the “erosion of purchasing power, hurting those the most that eke out livelihoods just to meet the costs of food, shelter and bare essentials.”
He observed that the anchoring of inflation expectations was incomplete and muddied by uncertainty, going by the increase in variability of median expectations of households and the underperformance of revenues of businesses relative to their profits.
“There is also growing evidence that inflation is undermining growth – people are not increasing discretionary spending in view of high inflation and this is slowing sales growth of corporations,” he pointed out.
“As the economy negotiates the rapids of the second and third quarters of 2023- 24, the trajectory of inflation is being buffeted by price shocks related to perishables. Surprisingly, they are producing inordinately high and painful spikes in the headline that are unacceptable from the point of view of the overall welfare of our societies,” he emphasised.
“If we tame inflation durably, we will prepare the ground for a long innings of strong and stable growth,” Dr. Patra stressed.
Published - October 20, 2023 11:24 pm IST
