IMF expects inflation in India to come down to 5% in 2023 and 4% in 2024

Inflation in India is expected to come down from 6.8 per cent in the current fiscal year ending March 31 to 5 per cent the next fiscal, and then drop further to 4 per cent in 2024, the International Monetary Fund (IMF) said on Tuesday.

“Inflation in India as in other countries is expected to come down from 6.8 per cent in 2022 to 5 per cent in 2023 and then 4 per cent coming towards the target in 2024,” Daniel Leigh, Division Chief, Research Department of the IMF told reporters here.

“That partly reflects the central bank's actions,” he added.

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According to the World Economic Outlook update released by the IMF on Tuesday, about 84 per cent of countries are expected to have lower headline (consumer price index) inflation in 2023 than in 2022.

Global inflation is set to fall from 8.8 per cent in 2022 (annual average) to 6.6 per cent in 2023 and 4.3 per cent in 2024 -- above pre-pandemic (2017–19) levels of about 3.5 per cent, it said.

The projected disinflation partly reflects declining international fuel and non-fuel commodity prices due to weaker global demand. It also reflects the cooling effects of monetary policy tightening on underlying (core) inflation, which globally is expected to decline from 6.9 per cent in the fourth quarter of 2022 (year over year) to 4.5 per cent by the fourth quarter of 2023, the IMF said.

“Still, disinflation will take time: by 2024, projected annual average headline and core inflation will, respectively, still be above pre-pandemic levels in 82 per cent and 86 per cent of economies,” it said.

In advanced economies, annual average inflation is projected to decline from 7.3 per cent in 2022 to 4.6 per cent in 2023 and 2.6 per cent in 2024 -- above target in several cases. In emerging markets and developing economies, projected annual inflation declines from 9.9 per cent in 2022 to 8.1 per cent in 2023 and 5.5 per cent in 2024, above the 4.9 per cent pre-pandemic (2017–19) average, the IMF said.

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In low-income developing countries, inflation is projected to moderate from 14.2 per cent in 2022 to 8.6 per cent in 2024 -- still high, but close to the pre-pandemic average, it further said.

In a blog post, Pierre-Olivier Gourinchas, Chief Economist and Director, Research Department of the IMF, wrote that global inflation is expected to decline this year but even by 2024, projected average annual headline and core inflation will still be above pre-pandemic levels in more than 80 per cent of countries.

“The inflation news is encouraging, but the battle is far from won. Monetary policy has started to bite, with a slowdown in new home construction in many countries. Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries,” Gourinchas said.