The Indian central bank’s objective of aligning inflation with its 4 per cent target on a durable basis is far from assured and a failure to do so could risk economic growth, the bank said in its latest bulletin published on Wednesday.

“On a real-time basis, inflation is hurting discretionary consumer spending and this, in turn, is holding back topline growth of manufacturing companies as well as their capex,” the Reserve Bank of India (RBI) said in its ‘State of the Economy’ article.

“If inflation is not brought back to the target and tethered there, there is a strong likelihood that growth may falter.”

Annual retail inflation rose to 5.55 per cent in November from 4.87 per cent in the previous month due to higher food prices, the latest data showed.

Projections indicated that inflation will go up further from the September-October 2023 average inflation rate of 4.9 per cent before it can come down, the RBI said.

The article also added that softer inflation data has engendered a “hypermetropia” among some stakeholders — an irrational long-sightedness where inflation forecasts gravitating towards the 4 per cent target in the distant future are sighted while near-term spikes due to food price volatility are blurred. The RBI reiterated the need to remain vigilant and ready to act according to the evolving outlook.

On the growth front, however, the central bank sounded a tone of cautious optimism and said internal models indicated that growth is likely to be sustained in H2:2023-24 and 2024-25 despite some moderation.

UK inflation

UK inflation dropped to 3.9 per cent in November, its lowest level since September 2021, from 4.6 per cent the previous month.

The development is likely to bolster speculation that the Bank of England may start cutting interest rates sooner than expected.