Image Source : PIXABAY.COM India’s retail inflation rate rises to 4.81 per cent in June from 4.31% in May
Retail Inflation Rate in India: Retail inflation rose to a three-month high of 4.81 per cent in June, mainly on account of hardening prices of cereals and pulses, though it remained within the comfort zone of the Reserve Bank.
The Consumer Price Index (CPI) based inflation moved northwards after declining for four months since February onth. The Reserve Bank of India (RBI), which will be announcing its next set of bi-monthly monetary policy early next month, mainly factors in retail inflation while deciding the benchmark interest rate (repo).
Retail or CPI inflation stood at 4.31 per per cent (revised upward from 4.25 per cent) in May and 7 per cent in June 2022. The previous high CPI was in March at 5.66 per cent.
NSO data:
According to the data released by the National Statistical Office (NSO), the inflation in the food basket was at 4.49 per cent in June, higher than 2.96 per cent in May. The food basket accounts for nearly half of the CPI.
The data revealed that annual rate of price rise was 19.19 per cent in case of spices, 12.71 per cent in ‘cereals and products’, 10.53 per cent in ‘pulses and products’, and 7 per cent in eggs. Fruits too were marginally costlier in June year-on-year.
However, there was a decline in inflation in ‘oil and fats’ (- 18.12 per cent) and vegetables (-0.93 per cent). Commenting on the data, Aditi Nayar, Chief Economist, Head-Research and Outreach, ICRA, said the spike in vegetable prices is set to push the CPI inflation to an uncomfortable 5.3-5.5 per cent in July 2023.
“We expect the vegetable price shock to result in the Q2 FY2024 CPI inflation exceeding the (RBI’s) Monetary Policy Committee’s last forecast of 5.2 per cent. “Accordingly, we anticipate that the Committee will retain its hawkish tone in August 2023, keep the repo rate unchanged and signal that a pivot to rate cuts remains distant,” she said.
Narinder Wadhwa, National President, Commodity Participants Association of India (CPAI), opined that rise in inflation suggests a potential change in the factors influencing consumer prices.
“It may be influenced by various factors such as changes in demand-supply dynamics, fluctuations in global commodity prices, government policies, or other economic factors. The rise in inflation is higher than street’s expectations,” he said.
The government has tasked the central bank to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side. Last month, the Reserve Bank kept policy rates unchanged at 6.5 per cent and projected retail inflation for the current fiscal to average at 5.1 per cent, with June quarter inflation pegged at 4.6 per cent.
The NSO data further showed that inflation was at 4.72 per cent in rural areas and 4.96 per cent in urban India. However, the food inflation was marginally higher than the national average in the rural areas.
The price data are collected from selected 1,114 urban markets and 1,181 villages covering all states and UTs through personal visits by field staff of field operations division of NSO, in the Ministry of Statistics and Programme Implementation (MoSPI) on a weekly roster.
Provisional index number for vegetables rises:
According to the Ministry of Statistics and Programme Implementation data released today, the provisional index number for vegetables rose from 161.0 in May to 180.6 in June. Vegetables have a 6 per cent weightage on the overall retail inflation. The rise in inflation could partly be attributed to the current spurt in tomato prices across India. The rise in tomato prices is reported across the country, and not just limited to a particular region or geography. In key cities, it rose to as high as Rs 150-160 per kg.
Amid a sharp spurt in tomato prices across the country, the Central government on Wednesday directed its agencies – NAFED and NCCF — to immediately procure the staple vegetable from mandis in key growing states of Andhra Pradesh, Karnataka, and Maharashtra.Besides vegetables, meat and fish; eggs; pulses and products; spices indices too saw an uptick.
Notably, retail inflation (Consumer Price Index) in India peaked at 7.8 per cent in April 2022, driven by a reduction in food and core inflation. In some advanced countries, inflation had in fact touched a multi-decade high and even breached the 10 per cent mark.RBI’s consistent monetary policy tightening since mid-2022 could be attributed to the substantial decline in inflation numbers in India. India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November 2022.
Under the flexible inflation targeting framework, the RBI is deemed to have failed in managing price rises if the CPI-based inflation is outside the 2-6 per cent range for three quarters in a row. Barring the recent pauses, the RBI has raised the repo rate by 250 basis points cumulatively since May 2022 in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
(With agencies inputs)
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