India’s retail inflation surged to 4.81 per cent in June after hitting a 25-month low of 4.25 per cent in May on an annual basis, showed data released by the ministry of statistics on Wednesday.
The consumer-price index (CPI) based inflation has remained within the Reserve Bank of India’s (RBI) tolerance band of 2-6 per cent for the fourth consecutive month.
Sequentially, the inflation increased to 1.01 per cent in June from 0.51 per cent in the preceding month. The inflation rate for vegetables witnessed a contraction of 0.93 per cent against a degrowth of 8.1 per cent in May. The inflation levels for food & beverage and fuel segments stood at 4.63 per cent and 3.92 per cent, respectively. For cereals, the inflation rate increased marginally to 12.71 per cent from 12.65 per in May.
The number can be attributed to a steeper-than-expected surge in the prices of vegetables, especially tomatoes, over the past few weeks.
A less supportive base and the onset of the spike in vegetable prices pushed up the CPI inflation to a higher-than-anticipated 4.8 per cent in June 2023, arresting the welcome cooling seen in the previous four months. ICRA had forecast the June 2023 CPI inflation at 4.7 per cent.
"Owing to the below normal rains in June 2023, kharif sowing was 8.7 per cent lower on a YoY basis as on July 7, 2023. Given that ~50 per cent of the total kharif sowing takes place in the month of July, well distributed rainfall in the ongoing month across all regions will be critical to replenish reservoirs and accelerate the pace of kharif sowing. Amidst the ongoing excess rainfall in North India, the surge in the prices of perishables, particularly vegetables, is likely to harden the food in ..
She further said the spike in vegetable prices is set to push the CPI inflation to an uncomfortable 5.3-5.5 per cent in July 2023. "We expect the vegetable price shock to result in the Q2 FY2024 CPI inflation exceeding the MPC'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," Nayar added.
"In June, the jump in vegetable prices, stiff cereals inflation and a sharp rise in pulses inflation pushed headline inflation up after two months of softening. While seasonal factors in these items were leading to a gradual uptick, weather-disruption amplified the rise in food inflation," said Dharmakirti Joshi, Chief Economist, CRISIL Ltd.
"July and August are critical months for agriculture, and we will wait to watch how rains pan out. Besides, as in the past, fiscal policy interventions via price stabilisation measures (such as release of stocks, facilitating imports, restrictions on hoarding) could be deployed to contain abnormal prices spikes," Joshi added.
A Bloomberg survey of economists had suggested that the consumer price inflation probably accelerated to 4.6 per cent in June, after moderating for four months.
“The weather-related price disruption has also been seen in other vegetables and most notably in onion prices,” Bloomberg quoted Anubhuti Sahay, an economist with Standard Chartered Bank, as saying. She sees the risk of inflation touching 6 per cent in July if the increase in food prices is sustained.
India's retail inflation was above RBI's 6 per cent target for three consecutive quarters and had managed to fall back to the RBI's comfort zone only in November 2022.
In its recent Monetary Policy Meet (MPC) which concluded on June 8, the Reserve Bank of India (RBI) had revised down the inflation forecast for FY24. The decision came amid recent dips in inflation readings, but the print is seen to remain above the 4 per cent target for this fiscal year while there are upside risks to food and commodity prices from potential supply cuts.
The RBI had cut the inflation aim to 5.1 per cent from 5.2 per cent forecast in April policy.
"The pace of monetary tightening has slowed in recent months, but uncertainty remains on its future trajectory as inflation continues to rule above targets across the world," RBI Governor and MPC Chair Shaktikanta Das said while announcing the policy decisions. "(For India) Close and continued vigil on the evolving inflation outloo ..
Source Name : Economic Times