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Policymakers can breathe easier on inflation

The past month has brought some encouraging news on the inflation front. Consumer price inflation dropped sharply in April to an 18-month low, keeping the headline rate comfortably within the RBI’s 2-6% target range. Both energy and food price inflation eased but, arguably most important, core inflation is now falling in earnest. Meanwhile, wholesale price inflation turned negative in April for the first time since July 2020. Policymakers have dialled back their concerns. Last week, RBI Governor Shaktikanta Das stated that the fall in headline inflation in April was “very satisfying” and that “monetary policy is on the right track”. Looking ahead, favourable base effects are set to drag down fuel and food price inflation a little further, while falling household inflation expectations and a subdued economic backdrop will keep underlying price pressures in check. The tightening cycle is now in the rear view mirror and if inflation remains within the RBI’s target range over the coming months as we expect, the RBI could even be laying the groundwork for rate cuts by the end of the year.

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