India’s retail inflation rises to 4-month high of 5.08% in June

Food inflation stays high

India’s retail inflation rose to four-month high of 5.08 percent in June compared with 4.75 percent in the previous month as food inflation galloped to 9.4 percent given the impact of heatwave on vegetables.

Inflation had dipped to a 12-month low of 4.75 percent in the previous month, despite food inflation hovering around 8.7 percent.

"Despite favourable base effect inflation in June 2024 reversed five months declining trend. The food inflation in June 2024, after being less than 9 percent for five consecutive months jumped to six months high of 9.36 percent," said India Ratings and Research (Ind-Ra) economists  Paras Jasrai and Sunil K Sinha.

June marks the eighth consecutive month of over 8 percent food inflation, data released on July 12 showed.

Sequentially, consumer price index, which is used to measure inflation, was up 1.33 percent compared with the previous month, with food inflation rising 3.17 percent.

Food concerns rise

Within food, vegetables and pulses inflation continued to remain in double digits with 29.3 percent and 16.1 percent rise compared with 27.4 percent and 17.1 percent, respectively.

Potato inflation was a high 57.6 percent in June, onion inflation was 58.5 percent and tomato inflation at 26.4 percent.

Pulses inflation has remained in double digits for 13 consecutive months, whereas vegetables inflation has witnessed a double digit increase for the eighth consecutive month.

Sequentially, vegetable prices were up 14.2 percent from May, while pulses were up 2.5 percent.

"Last year's reduced output, the impact of heatwaves in May-June on the shelf life of vegetables, and heightened demand due to festive season last month have all contributed to the sequential uptick in their prices," said Rajani Sinha, chief economist, CareEdge.

Inflation in miscellaneous items at 3.41 percent remained below 4 percent for the sixth consecutive month.

"Barring food and beverages, inflation across all the other sub-groups remained below the 4 percent mark in June 2024," said Aditi Nayar, chief economist, Icra.

Core CPI held steady at 3.1 percent.

High inflation is unlikely to deter Reserve Bank of India from its current stance of keeping the policy rate on hold.

RBI governor Shaktikanta Das in a recent interview with CNBC-TV18 had hinted at interest rates staying higher for longer.

“The overall economic environment globally and in India is so uncertain to talk in terms of interest rate cut. Second thing is CPI headline inflation continues to be close to 5 percent and according to surveys done it is expected to close 5 percent and I think it is too early to talk on interest rate cut,” Das had noted.

Better days ahead

Improvement in rainfall situation across the country and favourable base owing to high inflation in the previous year is likely to keep inflation contained economists said.

"Rainfall has regained momentum into the crucial month of July, allaying supply concerns. Vegetables also have a short crop cycle, helping to make related price pressures less pervasive. July-August inflation will benefit from favourable base effects, but the pullback will be shallower than previously anticipated on still elevated vegetables and telecom tariff hikes by local providers," said Radhika Rao, senior economist, DBS Bank.

Nayar pointed out that inflation could fall to 2.5-3 percent, on "account of the favourable base effect (+7.4% in July 2023), which will partly absorb the impact of the sequential surge in prices of vegetables."