In June, India experienced a four-month high in retail inflation, mainly driven by a rise in vegetable prices. Data from the Ministry of Statistics and Programme Implementation revealed that the Consumer Price Index (CPI)-based inflation increased to 5.08% in June, up from 4.75% in May.
Economists surveyed by Bloomberg had forecasted a 4.8% inflation rate for June. The increase in CPI inflation signifies a shift following a period of continuous easing throughout 2024.
Food and beverage prices recorded a notable increase, rising to 8.36% in June from 7.9% in May. This surge was largely propelled by a 29.32% year-on-year growth in vegetable prices, up from 27.3% in the previous month. On a monthly basis, vegetable prices saw a 14% increase in June.
Core inflation, which excludes volatile food and fuel prices, slightly increased to 3.15% in June from 3.12% in May.
Weather conditions impacted vegetable prices
The delayed start of the southwest monsoon and an extended heat wave in June played a role in the increasing vegetable prices, leading to food and beverage inflation surpassing 8%. Radhika Rao, a senior economist at DBS Bank, said these weather conditions had impacted vegetable prices, in turn pushing food and beverages inflation above 8%.
Adequate rainfall in July is crucial
Aditi Nayar, chief economist at ICRA, said adequate rainfall in July is crucial for the critical Kharif sowing season. She highlighted that around 50% of Kharif sowing usually occurs in July, and sufficient rainfall is essential to accelerate the sowing process.
While the India Meteorological Department (IMD) expects above-normal rainfall in July, Nayar cautioned that episodes of heavy rain and flooding in some states could damage already sown crops.
CPI inflation will soften in July
Despite these concerns, Nayar predicts that headline CPI inflation will soften to 2.5-3.0% in July, primarily due to the favorable base effect, which is expected to mitigate the impact of the sequential rise in vegetable prices.
Detailed Inflation Breakdown
Cereals: Prices increased by 8.75%, up from 8.7% in May.
Pulses: Inflation slightly decreased to 16.07% from 17.1%.
Milk and Milk Products: Inflation rose to 3% from 2.6%.
Oils and Fats: Prices declined by 2.68%, compared to a 6.7% contraction in the previous month.
Meat and Fish: Inflation decreased to 5.39% from 7.3% the previous month.
Eggs: Inflation dropped to 3.99% from 7.6% in May.
Clothing and Footwear: Inflation remained stable at 2.73%, barely changing from 2.7% in May.
Housing: Inflation in this sector edged up to 2.69% from 2.6%.
In summary, the significant increase in vegetable prices has been the primary driver of the surge in India’s retail inflation in June. However, with the expected favorable base effect and potential for improved monsoon conditions, inflation may ease in the coming months.
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