NEW DELHI: The retail inflation rate accelerated to 4.38 per cent in June from 3.93 per cent in May, breaching the Reserve Bank of India’s (RBI’s) 4 per cent benchmark target for the first time since January 2025 under the new series, as higher fuel prices lifted transport, food and restaurant services costs, showed data released by the National Statistics Office (NSO) on Monday.
But economists do not expect a rate hike by the Monetary Policy Committee (MPC) of the RBI at its upcoming meeting on August 5 as global oil price has retreated from the level seen in April this year.
Indian basket of crude oil which was at US $114 a barrel on an average in April, has eased to about US$ 71 in July, showed data available from the petroleum ministry.
June’s inflation reading — the sixth print under the updated 2024 consumer price index (CPI) series — is estimated to be an 18-month high when compared with the back-series data released by the NSO. The last time the rate was higher than the June level was in December 2024, when it stood at 5.22 per cent.
Aditi Nayar, chief economist at ICRA, said she expects the MPC to maintain status quo on the policy rate at its meeting in August 2026. “While the material easing in crude oil prices has reduced the likelihood of an early rate hike, the renewal of tensions in West Asia warrants some caution. Additionally, more clarity is needed on the monsoon outcome, which would only be available later during the monsoon season. Consequently, any rate hike(s) is likely to be back-ended in the financial year,” she added.
Madan Sabnavis, chief economist at Bank of Baroda, flagged the possibility of one rate hike during the year, perhaps after October, once “kharif harvest prospects become clearer”.
June was the first full month of data after the hikes in petrol and diesel prices in mid-May, and the transport group reflected this sharply, with its inflation jumping to 4.31 per cent from 1.75 per cent in May.
The fuel pass-through was also visible in services. Restaurants and accommodation services recorded inflation of 6.91 per cent, while the paan and tobacco sub-group was up 6.89 per cent as a higher goods and services tax (GST) added to costs.
Retail inflation in rural areas rose to 4.74 per cent, well above the 3.92 per cent recorded in urban areas.
The food inflation rate, measured by the Consumer Food Price Index (CFPI), rose to 5.32 per cent in June from 4.78 per cent in May, driven by sharp price increases in items such as ginger (50.41 per cent) and tomato (31.92 per cent).
Food and beverages recorded inflation of 5.05 per cent. Inflation in food and beverages crossed the 5 per cent mark for the first time in the new CPI series in June 2026, amid a steep 40 per cent rainfall deficit.
“June inflation was slightly above consensus, reflecting the continued normalisation of food prices and the pass-through of pump price increases implemented in mid-May,” said Radhika Rao, senior economist and executive director at DBS Bank. She said perishables, along with cereals, pulses and milk, rose on a sequential basis, while upside risks to core inflation remained limited amid softer gold and precious metal prices and little room for further retail fuel adjustments unless global prices rise sharply.
At the group level, personal care, social protection and miscellaneous goods and services remained the biggest driver at 16.72 per cent, followed by restaurants and accommodation.
“The four big-ticket inflation numbers were all driven by institutional factors, which can get reversed only in case of a rollback of prices related to energy,” said Sabnavis, adding that restaurant prices were unlikely to soften even when the energy situation normalises.
Among states, Telangana recorded the highest inflation at 6.36 per cent, followed by Andhra Pradesh (5.39 per cent), Tamil Nadu (5.24 per cent), Odisha (5.15 per cent) and Madhya Pradesh (5.09 per cent). Sabnavis noted that the southern states, along with Madhya Pradesh and Punjab, continued to see higher inflation, largely on account of food prices, with rural inflation running ahead of urban inflation in each case.
Dipti Deshpande, senior director and principal economist at Crisil, estimated that food inflation contributed about 185 basis points (bps) to the headline number, while non-food inflation contributed a larger 250 bps. She warned that the disinflationary support from GST rationalisation was likely to persist only until the end of the current quarter.
Economists expect price pressures to build further. Crisil sees inflation averaging 5.1 per cent this fiscal, while Sabnavis said the print was likely to average above 5 per cent for the year and edge towards the 5 per cent mark in the coming months. ICRA expects headline inflation to firm further to about 4.6 per cent in July.
Source: Business Standard
