NEW DELHI: India’s retail inflation, based on the Consumer Price Index (CPI), likely rose to a four-month high of 4.9% in June due to increase in vegetable prices in the backdrop of delayed monsoon, a median of a poll of 18 economists by FE showed. The estimates ranged from 4.5% to 5.19%.
In May, CPI inflation was at 4.75%, and in June 2023, it came in at 4.87%. The National Statistical Office (NSO) will release the updated data on Friday.
Economists say a delayed start to the southwest monsoon and prolonged heatwave is likely to have pushed June inflation higher than the trend anticipated earlier in the month. “As June progressed vegetable prices began to rise sharply, alongside pressure from a telecom tariff price hike, and a moderate rise in Kharif MSPs (minimum support price),” said Radhika Rao, senior economist, DBS Bank.
At the projected 4.9%, the overall index will increase 1.2% on the month, at the fastest pace in 11 months. This is primarily a consequence of rising food prices. Many economists expect food inflation, accounting for around 40% of the CPI, to have climbed up to 9.25-9.35% in June from 8.69% in May.
June recorded a sharp rise in vegetable prices, with tomato prices witnessing a jump 29% on month. Prices of onion and potato too have risen by 16% and 9%, respectively, in June from May.
Moreover, a hike in retail milk prices by major manufacturers also likely pushed up the milk inflation rate slightly in June. In May, inflation of ‘milk and products’ was at 2.62%.
According to Barclays, the CPI food index rose by 1.7% month-on-month in June. Besides vegetables and pulses, prices of other food items, such as cereals and milk, also rose faster sequentially, “though the magnitude was fairly contained”, Barclays economists said in a note.
Core inflation, meanwhile, likely stayed flat at 3.1%. Some economists, however, expect it to have inched up slightly to 3.2%. If core inflation rose in June, the month would mark the first rise in the inflation rate in 19 months.
“The momentum was likely stable in core CPI in June, with a seasonal sequential drop in housing CPI, offset by rises in clothing and miscellaneous items,” noted Barclays. For the rest of the year, core CPI is expected to move higher, but may remain below 4.5%, it added.
Rao said that at this juncture, with rain regaining momentum into July, vegetable prices are expected to moderate, benefiting from the crop’s short growth cycle. “Base effects will also push July-August inflation to sub-4%, allaying concerns,” she said.
The Reserve Bank of India’s Monetary Policy Committee in its June statement had said that although headline inflation is gradually easing, driven by softening in its core component, the path of disinflation is interrupted by “volatile and elevated food inflation due to adverse weather events.”
For the final descent of inflation to the target and its anchoring, monetary policy has to be watchful of spillovers from food price pressures to core inflation and inflation expectations, it had said.
Source: The Financial Express
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