Retail inflation rose to a three-month high of 4.81 per cent in June mainly on account of an increase in the prices of vegetables and the fading away of a favourable base effect, government data showed.

Inflation remained within the Reserve Bank of India’s upper tolerance limit of 6 per cent. The RBI — which is meeting in another three weeks —mainly factors in retail inflation while deciding the benchmark interest rate (repo).

Economists said core inflation — or inflation excluding food and fuel items — remained largely unchanged from 5.1 per cent in May.

“Amidst the ongoing excess rainfall in North India, the surge in the prices of perishables, particularly vegetables, is likely to harden food inflation further in the immediate term. Besides, the impact of El Nino on monsoons and sowing in India needs to be carefully monitored,” Aditi Nayar, chief economist, Icra, said.

Nayar expects the surge in vegetable prices to further push CPI inflation up to an “uncomfortable” 5.3-5.5 percent in July that may lead to inflation in the second quarter exceeding RBI’s forecast of 5.2 per cent forJuly-September.

Economists, however, do not expect the RBI to be forced into action, although the situation has turned difficult.

“There is not much the Reserve Bank can do in the food supply management but this adds pressure on them to stay vigilant on domestic dynamics,” Madhavi Arora, lead economist at Emkay Global Financial Services.

“Global externalities have already pressed them to signal a wait-and-watch guidance and the transient food spike will only complicate their reaction function,” she said.

US inflation

US consumer prices rose modestly in June and registered their smallest annual increase in more than two years. But inflation is not falling probably not fast enough to discourage the Fed from resuming raising rates.

US stocks were solidly higher in afternoon trading Wednesday on the inflation news. In the 12 months through June, the consumer price index (CPI) advanced 3 per cent, the smallest increase since March 2021.

On a month-on-month basis, inflation was at 0.1 per cent in June against 0.2 per cent in May, according to US Department of Labor. With inputs from Reuters