CPI rises to 18-month high of 4.38%, tops RBI’s target

Informist

New Delhi

India’s headline retail inflation rose to an 18-month high of 4.38% in June, exceeding the Reserve Bank of India’s medium-term target of 4%, according to data released on Monday by the statistics ministry. Retail inflation, based on the Consumer Price Index (CPI), increased from 3.93% in May.

The June inflation print largely aligned with economist expectations; an Informist poll had estimated CPI inflation at 4.3%. Retail inflation was 2.31% in June last year, based on the new CPI series with 2024 as the base year.

The food price index rose 1.71% on month in June, driving a 1.03% month-on-month rise in the general index. Annual food inflation increased to 5.32% from 4.78% in May. Core inflation, which excludes food and fuel, rose to 4.1% from 3.8% in May.

Food and beverages inflation rose to 5.05% in June from 4.55% in May. Aditi Nayar, chief economist at ICRA Ltd., noted that food and beverages inflation crossed the 5% mark for the first time in the new CPI series, amid a 40% rainfall deficit. India Meteorological Department data shows that rainfall for the period was 219.4 millimetres, 18% below normal as of Sunday.

At 4.38%, retail inflation has exceeded the RBI’s target for the first time in 17 months. The average CPI inflation for the June quarter is 3.93%, below the central bank’s projection of 4.2%. This data is the final release before the Monetary Policy Committee meets between Aug 3 and Aug 5.

ICRA expects the committee to maintain the status quo on policy rates. Nayar said that while eased crude oil prices reduce the likelihood of an early rate hike, renewed tensions in West Asia warrant caution.

In June, rural inflation stood at 4.74% compared to 3.92% for urban areas. "Electricity, gas, and other fuel" inflation rose to 1.75% from 0.81% in May, reflecting the impact of liquefied petroleum gas price hikes following conflict in West Asia. Transport inflation rose to 4.31% from 1.75%, while restaurants and accommodation services inflation grew to 6.91% from 5.75%.