india economic growth: Concerns over economic growth could assume centre stage as prices cool

Growth concerns could surpass inflation worries as the topmost priority for the RBI as elevated prices cool on the back of mélange of factors.

Global commodity prices have cooled and cereal inflation could taper in coming months. Healthy sowing of the Rabi crop will help in cooling wheat prices. cereal inflation has kept food prices elevated. Edible oil prices, which had burned a hole in the consumer pocket, have also significantly come down as supplies ease.

“As growth softens over the next few quarters, we believe the balance of concerns will tip towards weak growth; we expect a 50bp rate hike in December, followed by a prolonged pause,” HSBC economists Pranjul Bhandari and Aayushi Chaudhary, said in a report.

While the experts differ in their prognosis of the quantum of the rate hike in December, there is more or less a consensus that the RBI will take a breather amid concerns over flagging economic growth.

The US Fed has also signaled that it could slow down its rate hikes in the wake of inflation concerns easing.

HSBC economists estimate that the RBI could go for a 50 basis points hike in December before hitting a long pause.

Retail inflation cooled to 6.8 per cent in October but remained above the 6% upper end of tolerance band for the tenth consecutive month. The RBI MPC met at the beginning of this month to discuss the contents of the report it has to send to the government to explain the failure to arrest price rise and remedial measures.

Consumer pain

The private consumption story is still not completely out of the woods yet. A look at the latest industrial production print shows that both the durables as well as the non-durables sector were in the red for September. September was the start of the festive season as weakness on the consumer durable and non-durables front points to lingering pain.

“Consumer goods production remained negative for the third month despite the start of the festive season. It dipped further below pre-pandemic levels. Much of the weakness was driven by a fall in durables goods production (an indicator of urban demand), which slipped further to 8% below pre-pandemic levels. That said, weakness in the consumer non-durables production (an indicator of rural demand) persisted despite a mild pick-up in 2W sales. The index remained gluey at 9% below pre-pandemic levels,” HSBC economists highlighted in a note.

They pointed out that economic growth could slow down in the second half mainly on account of exports taking a hit and pent-up services tapering.

Moody’s recently cut India’s growth estimates for 2022 to 7% from 7.7% earlier and projected India’s economic growth to slow to 4.8% in 2023. High inflation and slowing exports were cited as reasons for the revision in numbers.