Retail Inflation Eases to 7.01% In June, Still Above RBI's Target Band

The retail inflation in India during June stood at 7.01 per cent, which is almost the same as compared with 7.04 per cent in May. This is the sixth consecutive month that the inflation is above the RBI’s tolerance limit of six per cent. Inflation in rural areas stood at 7.09 per cent during June 2022, while that in urban areas was 6.92 per cent.

However, this is the second consecutive month that has seen slight easing in inflation as compared to the previous month. The inflation in April had stood at 7.79 per cent, which fell to 7.04 per cent in May and now to 7.01 per cent in June.

The core inflation, which excludes food and fuel segments, stood at 6 per cent in June. The food inflation was at 7.75 per cent in June, compared with 7.97 per cent preceding month.

As per the data released by the National Statistical Office (NSO) on Tuesday, the inflation print in vegetables eased to 17.37 per cent during the month from 18.26 per cent in May, while for ‘pulses and products’ it slowed to (-) 1.02 per cent against (-)0.42 per cent.

However, the rate of price rise in ‘cereals and products’ moved up to 5.66 per cent, from 5.33 per cent in the preceding month. Inflation in the ‘fuel and light’ category rose to 10.39 per cent as against 9.54 per cent, while that for fruits increased to 3.10 per cent from 2.33 per cent.

Upasna Bhardwaj, chief economist of Kotak Mahindra Bank, said, “The CPI inflation broadly remained steady around 7 per cent bringing the 1QFY23 average to 7.3 per cent, marginally lower than the RBI’s projections of 7.5 per cent. Nonetheless, inflation is expected to remain elevated with only a gradual descent through the rest of the year.”

Bhardwaj added that while the softening global commodity prices provide some relief, the gains will be limited due to weakening rupee. “We expect the MPC to continue to frontload policy rate hikes especially as global monetary tightening continues. We expect 85-110 bps of additional rate hikes in the coming few meetings to bring the repo rate towards 5.75-6 per cent by the end of FY23.”

Retail inflation in May had slightly eased to 7.04 per cent on a sharp drop in the fuel prices after the reduction in excise duty had significantly contributed to bring down the food prices last month. The Consumer Price Index-based (CPI) inflation in May remained above the upper tolerance limit of Reserve Bank of India (RBI), for the fifth consecutive month.

As the inflation remained out of the central bank’s target limit, the Reserve Bank of India (RBI) in early June raised the key repo rate by 50 basis points (bps), which was the second hike within almost as month after the central bank’s Monetary Policy Committee increased 40 basis points in off-cycle policy review in May.

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