RBI’s report calls for pro-active supply side measures to mitigate the adverse impact of supply shocks

2023-10-07 06:01:57

Pro-active supply side measures assume importance in mitigating the adverse impact of supply shocks in the short-run, according to RBI’s Monetary Policy Report (MPR).

The MPR observed that medium-term policies to encourage crop diversification, promote climate-resilient crops, improve storage conditions, facilitate value addition in agriculture and augment agricultural supply chains would make food prices more resilient to climate vagaries.

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These observations come in the backdrop of climate events imparting substantial volatility to the inflation trajectory in H1 (April-September):2023-24.

Going forward, the overall inflation and the food inflation trajectory will likely be shaped by the intensity of El Niño conditions, the impact of the skewed south-west monsoon and global energy and food prices, the report said.

Monetary policy would persevere in its efforts to maintain price stability, to progressively align inflation with the target rate, thereby securing the prerequisite conditions for a high and sustainable growth over the medium term, it added.

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Headline CPI inflation had moderated from an average of 6.7 per cent in 2022-23 to 4.3 per cent in May 2023 in response to monetary policy actions and supply side measures, the report said.

Reversing these gains under the impact of sporadic food supply shocks, inflation jumped to 7.4 per cent in July and 6.8 per cent in August.

TOP margins

Mapping TOP (tomato, onion and potato) margins with the corresponding wholesale price levels, it is observed that as wholesale prices increase, margins also rise,the report said.

During July 2014 to August 2023, when the TOP wholesale prices rose from the 10th to the 100th percentile of the distribution, margins increased by three times for tomatoes, and two times for onions, while the increase was low in case of potatoes. However, as a percentage of wholesale prices margins were seen to fall.