World Bank Speculates India's Inflation to be Heightened by Soaring Food Prices
The World Bank maintained India's growth forecast for FY24 at 6.3%, powered by investment, while dramatically raising its inflation forecast to 5.9% from 5.2%.
"Private consumption growth is likely to slow as the post-pandemic catch-up fades, and external demand for India's exports will be affected by slowing growth in major trading partners, including the EU," the World Bank said in its India Development Outlook, citing public infrastructure investment as a major driver of growth.
Due to strong domestic demand, India's GDP increased 7.8% in the first quarter of the fiscal year. However, the international lender predicted that domestic demand would remain strong, albeit at a slower pace.
"Private consumption growth is likely to taper off as post-pandemic pent-up demand fades and high food price inflation constrains demand, particularly for low-income households," it noted.
The Washington-based international lender warned that inflation will likely rise faster than predicted to 5.9% in FY24, approaching the upper limit of the Reserve Bank of India's target range of 2-6%.
"In July 2023, abnormal rainfall during the monsoon months caused a sharp increase in food prices." "While it eased in August, it is expected to continue to weigh on headline inflation for the remainder of the fiscal year," according to the World Bank.
It went on to say that oil, albeit lower than the heights seen in 2022, remained a problem. In India, inflation fell modestly to 6.8% in August, from a 15-month high of 7.4% in July. Experts predict that it will ease more in September.