Inflation slows personal consumer spending, which in turn dampens corporate sales and holds back private investment in capacity creation, a Reserve Bank document said on Friday. The paper, written by a team led by RBI Deputy Governor Michael Debabrata Patra, underscored the need to lower inflation to revive consumer spending and boost business revenues and profitability.
Retail inflation based on the consumer price index (CPI), which remained above 5 percent in 2022-2023, is now on the decline, falling to a two-year low of 4.25 percent in May, reflecting RBIs monetary policy measures and government measures.
“Recent data from national accounts and corporate earnings, read together, clearly show that inflation is slowing down personal consumption expenditure. This, in turn, dampens corporate sales and holds back private investment in capacity building,” the article in the latest bulletin of the RBI said.
However, the Reserve Bank said that the views expressed in the bulletin articles are those of the authors and do not represent the views of the Reserve Bank of India.
The “State of the Economy” article emphasized that curbing inflation and stabilizing inflation expectations will revitalize consumer spending and increase corporate income and profitability, providing the best stimulus for private investment spending.
The article went on to say that global economic activity has maintained its growth momentum in the second quarter of 2023, albeit with two diverging paths.
“While economies like India are recovering, some others are slowing down or contracting,” it said.
India’s real GDP growth in the fourth quarter of 2022-2023 was the highest of the world’s major economies at 6.1 percent, and CPI inflation fell to a 25-month low of 4.25 in May 2023 per cent.
Kharif sowing, it said, has begun after a record rabi harvest, and the manufacturing sector has posted a rise in net profits.
Credit growth is returning to more sustainable funding sources and the Indian rupee is proving to be the most stable currency among emerging market counterparts.
(This story has not been edited by News18 staff and was published from a syndicated news agency feed – PTI)