India's CPI Inflation Rises To A Three-Month High Of 4.81% In June
The Consumer Price Index-based inflation stood at 4.81% in June, as compared with 4.3% in May.
India's retail inflation saw an uptick in June after having eased to a 25-month low last month. The current uptick was led by food prices and is expected to persist in the ongoing month.
The Consumer Price Index-based inflation stood at 4.81% in June, as compared with 4.3% in May, according to data from the Ministry of Statistics and Programme Implementation released on Wednesday.
A panel of 35 economists polled by Bloomberg had estimated a reading of 4.6% for June.
Food and beverage inflation rose to 4.63% during the month, from 3.35% in May.
Core inflation—excluding volatile food and fuel—rose to 5.2% from 5.15% in May, according to Bloomberg.
Consumer price inflation remains within the central bank's target range of 4 (+/- 2)%.
A less supportive base and the onset of the spike in vegetable prices pushed CPI inflation to a higher figure, arresting the welcome cooling seen in the previous four months, said Aditi Nayar, chief economist at ICRA.
While food and beverages and miscellaneous items drove the sequential uptick in CPI inflation in June 2023, clothing, footwear, housing, fuel and light recorded a decline, she said.
Inflation Internals
Cereal prices rose 12.7% in June, as compared with 12.72% in May.
Inflation in meat and fish rose 1.41%, as against a decline of 1.24% last month.
Inflation in eggs was 7.03%, from 6.65% in the previous month.
Inflation in milk and milk products was 8.56% vs 8.85%.
Prices of oils and fats declined 18.12%, after falling by 16%.
Vegetable prices declined 0.93%, as compared with a decline of 7.95%.
Pulses inflation was at 10.53%, as against a rise of 6.62% in May.
Clothing and footwear inflation was at 6.19% from 6.64%.
Housing inflation rose 4.56% as against 4.8% in the previous month.
Fuel and light inflation stood at 3.92% from 4.7% in May.
Further Bumps Ahead?
Owing to the below-normal rains in June, kharif sowing was 8.7% lower on an annual basis, as on July 7. Given that about 50% of the total kharif sowing takes place in the month of July, well-distributed rainfall in the ongoing month across regions will be critical to replenish reservoirs and accelerate the pace of kharif sowing, Nayar said.
Amid the ongoing excess rainfall in North India, the surge in the prices of perishables—particularly vegetables—is likely to harden the food inflation further in the immediate term, she said. The impact of El Nino on monsoons and sowing in India also needs to be carefully monitored, according to her.
Gaura Sen Gupta, India economist at IDFC First bank also said that the July CPI print is expected to be elevated due to the surge in vegetable prices, in particular tomatoes.
In the first half of the ongoing month, tomato prices are higher by 175% on a sequential basis, according to data by the Department of Consumer Affairs. Preliminary estimate for July CPI is tracking at 6.5%, assuming some moderation in vegetable prices in the second half of the month, Sen Gupta estimated.
The spike in vegetable prices is set to push the CPI inflation to an uncomfortable 5.3-5.5% in July, according to Nayar.
We expect the vegetable price shock to result in the Q2 FY24 CPI inflation exceeding the Monetary Policy Committee's last forecast of 5.2%. Accordingly, we anticipate that the Committee will retain its hawkish tone in August 2023, keep the repo rate unchanged and signal that a pivot to rate cuts remains distant.Aditi Nayar, Chief Economist, ICRA
The RBI is likely to look through the transient surge in food prices, which is better dealt by supply-side measures, Sen Gupta said. Growth recovery has proved resilient with IIP growth rising to 5.2% in May 2023, she said.
Sen Gupta also expects the RBI to remain on a prolonged pause till at least December 2023.
