Government Predicts Inflation to Fall to 9.5-10.5% in August with a Positive Economic Outlook

Inflation Forecast and Economic Outlook August 2024

In a recent update, the government has projected a reduction in inflation to a range of 9.5-10.5% for August 2024. This forecast comes amidst positive trends in key economic indicators and efforts to stabilize the economy. The projection also suggests a further decline in inflation to 9-10% by September 2024, offering a cautiously optimistic outlook for the remainder of the year.

CPI Trends and Monthly Economic Outlook

According to the Monthly Economic Update & Outlook for August 2024, the Consumer Price Index (CPI) inflation was recorded at 11.1% year-on-year (YoY) in July 2024. This marks a decline from the previous month’s rate of 12.6% and a significant reduction from 28.3% in July 2023. On a month-on-month (MoM) basis, inflation increased by 2.1% in July 2024, compared to a 0.5% rise in June.

The report identifies key drivers behind the YoY CPI increase, including a substantial rise in the prices of perishable food items (29.2%), Housing, Water, Electricity, Gas, and Fuels (25.3%), along with other essential sectors like Health, Clothing, and Transport. Despite these challenges, the Sensitive Price Index (SPI) for the week ending on August 22, 2024, recorded a slight decrease of 0.10% compared to the previous week, indicating some relief for consumers.

LSM Sector and Economic Growth Prospects

The report also highlights a positive outlook for the Large Scale Manufacturing (LSM) sector, which is expected to maintain a growth trajectory in FY2025. This growth is anticipated to be driven by improved external demand, a stable exchange rate, decreasing inflation, and the easing of monetary policy.

These factors are critical in ensuring that the LSM sector continues to contribute to overall economic growth, supporting job creation, and increasing productivity in various industries.

Agricultural Outlook and Kharif 2024 Production

The agriculture sector’s performance, particularly during the Kharif 2024 season, is closely tied to weather conditions. The specific weather patterns for each crop will play a crucial role in determining yields. While recent and ongoing rainfall could benefit crops like rice, sugarcane, cotton, fodder, and vegetables, there is also a risk that excessive rain could damage farmland, negatively affecting production.

Monitoring these weather patterns will be essential for ensuring that agricultural outputs remain robust, supporting food security and contributing to economic stability.

External Sector and Trade Forecast

On the external front, the report indicates an upward trend in exports, imports, and workers’ remittances (WRs). For August 2024, exports are expected to range between $2.5-3.2 billion, imports between $4.5-5.0 billion, and remittances around $2.6-3.3 billion.

The stability of the external sector relies on several factors, including a stable exchange rate, revitalized domestic economic activities, better agricultural output, low domestic and global commodity prices, and improved foreign demand. These elements are crucial in sustaining the positive momentum in trade and remittances, which are vital components of the national economy.