On July 12, the government data showed that the consumer price index based retail inflation rose to four month high of 5.08 percent in June compared with 4.75 percent in the previous month.
Inflation had dipped to a 12-month low of 4.75 percent in the previous month, despite food inflation hovering around 8.7 percent.
June marks the eighth consecutive month of over 8 percent inflation, data released on July 12 showed.
Sequentially, consumer price index, which is used to measure food inflation, was up 1.33 percent compared with the previous month, with food prices rising 3.17 percent in June.
Why did the June inflation numbers jump?
The simple answer is rise in food prices.
According to Bank of Baroda chief economist Madan Sabnavis, inflation is up mainly due to jump in food inflation which was 9.4%.
Major contribution for this price rise came from vegetable, fruits, pulses and cereals.
The heatwave impact has been seen on vegetables. Wheat production lower according to the market for FY24 which has seen prices move up. These products will continue to witness high inflation.
Also, progress of monsoon important here as any shortfall in regions growing pulses can increase prices, Sabnavis says.
Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research said the headline CPI inflation was slightly higher than our expectations at 5.08% in Jun’24 as compared to 4.75% in May’24.
“This is the first time in four months that the CPI inflation print has seen a significant sequential rise, largely driven by the increased food inflation which stood at 9.4% YoY vs 8.7% YoY in the previous month. Vegetable prices have been particularly on fire (29.3% YoY) in June due to the continuing summer heat waves in some parts of the country,” Chowdhury said.
“While we expect the vegetable prices to cool down over the next 2-3 months with the expected progress in the monsoon, it is difficult to predict the trajectory of food inflation in India at this stage. While the average CPI inflation in Q1FY25 has been less than 5% in line with RBI estimates, there is an upside risk on inflation in the subsequent quarters which will continue to keep RBI cautious,” Chowdhry added.
Despite the likelihood of a Fed rate cut having increased for Sep’24, we don’t expect any monetary easing measures from RBI till Dec’24, Chodhwery added.
Radhika Rao, Executive Director and Senior Economist, DBS Bank on CPI inflation.
“The RBI monetary policy committee’s concern over the trajectory of food inflation played out in the June print. Inflation rose 5.1% yoy close to our forecast at 5% on higher food costs, reflected in the steeper MoM rise assumption vs 0.7% in May,” said Rao.
Further, a weak start to the southwest monsoon in June and prolonged heatwave impacted vegetable prices, in turn pushing food and beverages inflation back above 8%. Encouragingly, 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, Rao said.
While July-August inflation will benefit from favourable base effects, the pullback will be shallower than previously anticipated on still elevated vegetables and telecom tariff hikes by local providers, the DBS economist added.
“MSPs for the FY25 kharif crop have also been raised but the aggregate pace is modest when compared to FY24. With the MPC’s concerns validated, we don’t expect the central bank to deviate from their preference to keep the repo rate on hold when they meet next month,” Rao said.