Retail inflation in June — based on the consumer price index (CPI) — remained stubbornly above the 7 per cent mark, against the Reserve Bank’s upper tolerance level of 6 per cent, raising the prospect for further interest rate hikes by the Reserve Bank of India.
The CPI inflation in June eased a tad to 7.01 per cent from 7.04 per cent in May. It remained above the RBI threshold for the sixth month running.
According to Aditi Nayar, chief economist Icra, core inflation — which is the inflation print stripped off the food and energy components — jumped to 6 per cent in June from 5.5 per cent in May. Economists said retail prices showed little sign of cooling despite the Reserve Bank of India (RBI) raising its benchmark repo rate by 90 basis points over the last two months and the government slapping export curbs on wheat and other food items.
A near 7 per cent depreciation in the rupee against the dollar this year has pushed up the prices of imported food and energy products for Indian consumers.
Nayar said core inflation rose across all heads barring miscellaneous items. Inflation in clothing and footwear rose to 9.5 per cent from 8.9 per cent.
Pan, tobacco and intoxicants inflation rose to 1.8 per cent from 1.1 per cent and housing to 3.9 per cent from 3.7 per cent.
“The headline inflation exceeded the core-CPI inflation for the seventh consecutive month in June 2022, although the gap between the two prints dipped to 99 basis points in June 2022 from 158 basis points in the previous month,” the Icra economist said.
“We will have to be mindful and watchful of the price movement,” finance minister Nirmala Sitharaman said on Tuesday.
“I will keep monitoring (prices) item by item for anything that goes haywire. This pointed attack on inflation will need to continue.” Sunil Kumar Sinha, principal economist, India Ratings and Research, said the worrying trend in June 2022 inflation compared with May is 15 commodity groups out of 23 groups with a combined weight of 70.82 per cent in CPI basket witnessing higher inflation.
This number was five with a combined weight of 30.79 per cent in May 2022. “After a gap of one month, June rural inflation is again higher than the urban inflation. In last six months, rural inflation has remained higher than urban inflation in five months,” Sinha said.
There was a marginal decline in food inflation to 7.75 per cent in June from 7.97 per cent in May, mainly due to a sharp decline in oil and fat inflation. Food prices, which account for nearly half of the inflation basket, are expected to remain high because of supply chain issues and crude oil price increases amid geopolitical tensions, analysts said.
Out of the 12 sub-categories in food, 10 segments have seen a sequential price increase in June, except for edible oil and fruits.
The reduction of supply challenges in case of imported edible oil, lower international prices and imports at lower duties have helped to moderate domestic prices which are expected to go down further in the near term.
Last month, the Reserve Bank in its bi-monthly monetary policy review raised the benchmark repo rate — at which it lends short-term money to banks — by a sharp 0.50 per cent to 4.90 per cent to rein in spiralling prices.
It followed an off-cycle meeting on May 4, when the central bank hiked the repo rate by 0.40 per cent. RBI said the global geopolitical situation remains fluid and commodity markets remain on the edge, rendering heightened uncertainty to the domestic inflation outlook.
