June retail inflation higher than expected | Mint
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Business News/ Economy / June retail inflation higher than expected
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June retail inflation higher than expected

A Mint poll of economists had predicted retail inflation measured by the Consumer Price Index (CPI) at 4.6%, against 7.01% a year earlier

Food inflation measured by the Consumer Food Price Index (CFPI), which accounts for nearly half of the overall consumer price basket, rose to 4.49% in June (Reuters)Premium
Food inflation measured by the Consumer Food Price Index (CFPI), which accounts for nearly half of the overall consumer price basket, rose to 4.49% in June (Reuters)

Retail inflation, which cooled steadily for four months, leapt to a higher-than-expected 4.81% in June, driven by rising food and vegetable prices.

A Mint poll of economists had predicted retail inflation measured by the Consumer Price Index (CPI) at 4.6%, against 7.01% a year earlier. Inflation for May stood at 4.31%, according to the revised figures released on Wednesday.

June’s retail inflation, according to provisional data from the ministry of statistics and programme implementation (MoSPI), remains within the central bank’s upper tolerance band of 6%, but above the 4% medium-term target.

 

Graphic: Mint
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Graphic: Mint

Food inflation measured by the Consumer Food Price Index (CFPI), which accounts for nearly half of the overall consumer price basket, rose to 4.49% in June 2023 against 2.96% (revised) in May 2023. During June 2022, CFPI stood at 7.75%.

Economists said inflation could cross 5% in the next two months on a continued rise in prices of vegetables, pulses and cereals. “The spike in vegetable prices is set to push CPI inflation to an uncomfortable 5.3-5.5% in July 2023," said Aditi Nayar, chief economist, Icra Ltd.

“We expect the vegetable price shock to result in the Q2 FY2024 CPI inflation exceeding the monetary policy committee’s last forecast of 5.2%," Nayar said. “Amid 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 monsoon and sowing in India needs to be carefully monitored," she added.

Food inflation was driven highlighted by cereal inflation, which continued in double digits, whereas eggs, milk, pulses, and spice inflation rose due to limited supply. Core inflation also cooled slightly to 5.2% but was still trending above the headline inflation, economists said.

“The food basket is beginning to bite with inflation of 4.6% here. The major elements driving this inflation are cereals (12.7%), eggs (7%), milk (8.6%), pulses (10.5%) and spices. Edible oil has helped to push down inflation with -18.1% inflation," said Madan Sabnavis, chief economist at Bank of Baroda.

“The major concern here is vegetables, where disinflation has moved from -8% region last month to just -0.1%, and is all likely to go ahead sharply next month due to the tomato shock. As the area under irrigation under rice, maize, and pulses is lower (along with soybean), there will be upward pressure on both cereals and pulses," Sabnavis added.

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Published: 13 Jul 2023, 12:26 AM IST
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