Mumbai: Inflation is slowing down personal consumption expenditure, which in turn is moderating corporate sales and holding back private investment in capacity creation, said a Reserve Bank paper Friday.
The paper, authored by a team led by RBI Deputy Governor Michael Debabrata Patra, underlined the need for lowering inflation to revive consumer spending and boost corporate revenues and profitability.
The retail inflation based on the consumer price index (CPI), which remained above 5 per cent during 2022-23, is now on the decline and fell to a two-year low of 4.25 per cent in May, following RBI’s monetary policy actions and government measures.
“Recent national accounts data and corporate results when read in conjunction clearly show that inflation is slowing down personal consumption expenditure. This, in turn, is moderating corporate sales and holding back private investment in capacity creation,” said the article published in the RBI’s latest bulletin.
The Reserve Bank, however, said the views expressed in the bulletin articles are of the authors and do not represent the views of the Reserve Bank of India.
The article on the ‘State of the Economy’ stressed that bringing down inflation and stabilising inflation expectations will revive consumer spending, and boost corporate revenues and profitability, which is the best incentive for private capex.
The article further said global economic activity has sustained its growth momentum in the second quarter of 2023, albeit with two diverging roads.
“While economies like India are rebounding, some others are slowing or contracting,” it said.
India’s real GDP growth in Q4 2022-23 at 6.1 per cent was the highest among major economies of the world, and CPI inflation came down to a 25-month low of 4.25 per cent in May 2023.
Kharif sowing, it said, has begun on the back of a record rabi harvest, and the manufacturing sector has posted a pick-up in net profits.
Credit growth is rebasing to more durable sources of funding, and the Indian rupee is turning out to be the most stable currency among emerging market peers.
PTI
