India’s consumer price index (CPI) inflation likely rose to 4.6 per cent on higher vegetable prices in June, after hitting a 25-month low at 4.25 per cent in May 2023. The pressure on vegetable prices was a result of the El Nino impact in India. The uneven monsoon rains have damaged crops of some perishable foods and hindered the movement of goods, resulting in shortages of basic ingredients for cooking, such as tomatoes, chillies and onions.
India’s consumer price index (CPI) inflation likely rose to 4.6 per cent on higher vegetable prices in June, after hitting a 25-month low at 4.25 per cent in May 2023. The pressure on vegetable prices was a result of the El Nino impact in India. The uneven monsoon rains have damaged crops of some perishable foods and hindered the movement of goods, resulting in shortages of basic ingredients for cooking, such as tomatoes, chillies and onions.
‘’June CPI inflation data will be released this week. Expectations are at 4.6 per cent, higher from May at 4.25 per cent mainly due to higher vegetable prices amid unseasonal rains causing supply disruptions. Further, we expect core CPI inflation at 5.2 per cent – higher by 5 bps from the May reading,” said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.
‘’June CPI inflation data will be released this week. Expectations are at 4.6 per cent, higher from May at 4.25 per cent mainly due to higher vegetable prices amid unseasonal rains causing supply disruptions. Further, we expect core CPI inflation at 5.2 per cent – higher by 5 bps from the May reading,” said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.
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One basis point is equal to one-hundredth of a percentage point.
A poll of 55 economists conducted by news agency Reuters predicted that CPI inflation likely snapped the four-month decline and rose at an annual pace of 4.58 per cent in June, slightly faster than the 4.25 per cent recorded in May.
Notably, retail inflation for vegetables witnessed a contraction of 8.18 per cent in May, while inflation for oils and fats also contracted by 16 per cent. Inflation levels for cereals products stood at 12.65 per cent, milk and products at 8.91 per cent, and spices at 17.9 per cent.
Core inflation – or inflation excluding the volatile food and fuel items – declined again in May, falling to 5 per cent from 5.2 per cent in April.
However, CPI inflation is likely to remain below the Reserve Bank of India’s upper tolerate limit of 6 per cent for the rest of the financial year. There are upside risks to inflation, mainly from El Nino impact on monsoon, according to the July edition of Netra report by DSP Mutual Fund.
Inflation momentum is moderating in a broad-based manner. Further, a lower core CPI is led by slower goods inflation, which reflects declining international commodity prices like crude oil, metals and even food, according to DSP.
‘’Food inflation is a seasonal phenomenon, if considered from a cyclical perspective, it is expected to be manageable. Even though 2HFY24 may see a marginally higher inflation, it is likely to remain in RBI’s comfort zone assuming no new surprises,” said DSP in its July edition of Netra report.
The prices of food items, which account for around half of the CPI basket, especially kitchen staples, have almost tripled in the past month, hitting low income households hardest.
While the RBI’s Monetary Policy Committee (MPC) is tasked with keeping inflation within a 2 per cent to 6 per cent range, it is expected to try and anchor inflation close to the 4 per cent mid-point of that band.
Another poll conducted by Reuters in late May predicted that the RBI would leave interest rates unchanged until the end of this year, even as other major global central banks were expected to continue tightening monetary policy to quell sustained price pressures.
The RBI projected CPI inflation for the current fiscal (FY24) at 5.1 per cent while announcing the second MPC stance for the fiscal on June 8. RBI Governor Shaktikanta Das-led rate-setting panel has predicted inflation at 4.6 per cent for the first quarter of fiscal 2023-34 (Q1FY24).
The Ministry of Statistics will release the retail inflation data for June on July 12 at 5:30 pm.
