CPI inflation rises higher-than-estimates to 4.81% in June 2023; food inflation jumps to 4.49%

India's consumer price index (CPI) inflation rises for the first time in five months to 4.81% in June 2023. Also, the rise in inflation is higher than the street's expectations of 4.58%, nevertheless, the CPI print is still below RBI's upper tolerance limit of 6%. CPI was pushed higher than expected due to a less supportive base and the onset of a surge in vegetable prices. Food inflation spiked to 4.49% in June.

As per the Ministry of Statistics & Programme Implementation, CPI inflation stood at 180.9 in June 2023, versus 178.2 in May month and 172.6 in the same month a year ago.

In percentage terms, the inflation came in at 4.81% versus 4.31% in May 2023 and 7.01% in June last year.

The consumer food price index (CFPI) jumped to 4.49% in June 2023, compared to 2.43% in May month and 7.75% in June of the previous year.

Further, in June 2023, the food and beverages inflation rate was at 4.63%, pan, tobacco, and intoxicants inflation rate came in at 3.65%. Clothing and footwear recorded an inflation of 6.19%, meanwhile, housing inflation stood at 4.56%. Fuel and light inflation were at 3.92%, and miscellaneous saw inflation of 5.19%.

Explaining the reason behind the spike in CPI, Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA said, "A less supportive base and the onset of the spike in vegetable prices pushed up the CPI inflation to a higher than anticipated 4.8% in June 2023, arresting the welcome cooling seen in the previous four months. ICRA had forecast the June 2023 CPI inflation at 4.7%."

She added, "While food and beverages and miscellaneous items drove the sequential uptick in the YoY CPI inflation in June 2023, clothing and footwear, housing, and fuel and light recorded a decline."

Further, Nayar expects the vegetable price shock to result in the Q2 FY2024 CPI inflation exceeding the MPC's last forecast of 5.2%. Accordingly, she said, "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."

Further, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, "The weather-related disruptions is expected to keep the prices of perishable food items escalated in the near term. Continued disruptions may pose a 20-25bps upside to our average fy24 estimate of 5.1%. The RBI will remain cautious on these supply-side shocks but we maintain our expectations of a pause on rates through the year."

Although inflation has eased significantly, Manish Chowdhury Head of Research StoxBox believes that it does not drastically reduce the chances of a rate hike in the FOMC monetary policy meeting scheduled later this month. He added, "The labour market data still does not warrant a pivot any time soon and is reflected from the recent commentaries of various Fed officials who see further room for rate hikes as we move ahead."

In the case of the inflation impact on the real estate market, Vivek Rathi, Director of Research, Knight Frank India said, "The overall low inflation level supports the argument for maintaining key policy rates in the upcoming RBI policy meeting."

Rathi added, "Considering that homebuyers have been hoping for reversal in interest rate cycle sooner, the interim rise in inflation can delay rate cuts. However, with the inflation level remaining within the RBI tolerance band of 2-6%, inflation is not the biggest worry for the Indian economy. Stable policy environment, strengthening supply side and consumer enthusiasm will remain the key catalysts driving the housing market."