New Delhi: India’s retail inflation slowed to 7.31% in June from 8.28% a month ago as food prices fell, the lowest since January 2012. Data released earlier in the day showed wholesale-price inflation decelerated to a four-month low at 5.43% in June compared to 6.01% a month ago, as prices of cereals and pulses eased during the month.

However, the likelihood of a sub-normal monsoon and the fallout of the violence in Iraq on commodity and oil markets is expected to put pressure on prices.

What may also worry policymakers is the continued upward revision of provisional inflation data. The industry department revised upward the April wholesale price inflation number to 5.55% from the provisional figure of 5.2% released earlier.

The National Democratic Alliance government unveiled a slew of anti-inflationary measures by asking the state governments to crack down on hoarders and fixing minimum export prices for onions and potatoes to discourage exports and increase local supply.

States have also been asked to delist certain items that are usually procured through agriculture produce marketing committees so that they come into the open market.

Last week, finance minister Arun Jaitley presented his maiden budget announcing a slew of measures to revive growth to 7-8% within the next three to four years and promising to maintain fiscal deficit at 4.1% of GDP in the current fiscal year.

The Reserve Bank of India (RBI) has kept key interest rates unchanged in its June policy review, but said it may ease monetary policy if inflation slows faster than anticipated. RBI has set the target of CPI at 8% by January 2015 and 6% by January 2016. The central bank kept the repo rate, at which it lends short-term funds to banks, at 8%, having raised it by 75 basis points to tame rising prices since governor Raghuram Rajan took office in September. One basis point is one-hundredth of a percentage point.

Icra senior economist Aditi Nayar said notwithstanding the easing in WPI inflation in June and a favourable base effect in the months ahead, the inflation outlook remains uncomfortable on account of the continuing weakness of monsoon rainfall, delay in sowing of various kharif crops and firming up of core inflation in recent months. “Such factors have diminished the likelihood of monetary easing in the remainder of 2014," she added.

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