CPI Inflation Eases To 7.01% In June
The Consumer Price Index inflation eased to 7.01% in June from 7.04% in May and 7.79% in April.
Retail inflation eased for the second straight month, led by a decline in prices of food items.
The Consumer Price Index inflation rose to 7.01% in June from 7.04% in May and 7.79% in April, according to data released by the Ministry of Statistics and Programme Implementation on Tuesday.
Inflation in food and beverages eased to 7.56% from 7.84% in May 2022. Core inflation too eased to 6.22% from 6.4% in the same duration.
A Bloomberg poll of 38 economists had estimated inflation at 7.1%.
Still, retail inflation has exceeded the Reserve Bank of India's upper target for the sixth straight month and prompted the Monetary Policy Committee to raise the policy repo rate by 90 basis points to 4.9%. This is the second consecutive quarter that retail inflation has remained above the central bank's target band of 4 (+/-2) %.
Breach of the target for three consecutive quarters requires the RBI to write a letter explaining the breach to the government.
Inflation Internals
Cereal prices rose 5.66% over a year ago compared with an increase of 5.33% in the previous month. It rose by 0.6% month-on-month.
Inflation in meat and fish was at 8.61% compared to 8.23% in May. It rose by 1.1% month-on-month.
Inflation in oils and fats was at 9.36% compared to 13.26% in May. It fell by 0.7% month-on-month.
Vegetable prices rose 17.37% over a year ago compared with an increase of 18.26% in the previous month. It rose by 4.3% month-on-month.
Pulses inflation was at -1.02% compared to a decline of 0.86% last month. It fell by 0.2% month-on-month.
Fuel and light inflation stood at 10.39% against 9.54% in May. It rose by 1% month-on-month.
Clothing and footwear inflation was at 9.52% compared to 8.85% a month ago. It rose by 0.8% month-on-month.
Housing inflation stood at 3.93% compared with 3.71% the preceding month. It fell by 0.4% month-on-month.
The CPI inflation print cooled only marginally in June, but nonetheless offered relief, Aditi Nayar, chief economist at ICRA Ltd., said.
The moderation in the CPI inflation for food and beverages, and miscellaneous items, was almost fully offset by higher inflation for pan, tobacco and intoxicants, clothing and footwear, housing, and fuel and light, she said. The cut in excise duty on petrol and diesel drove the downtrend in the transport and communication sub-index of miscellaneous items, whereas the services sub-indices reported a pick-up in inflation that needs to be watched very carefully.
With commodity prices having eased sharply on the back of a feared global recession, and the decline in vegetable and edible oil prices, the Indian retail inflation prints should soften below 7% in the coming months, according to Nayar, who continues to forecast front-loaded rate hikes of 60 basis points spread over the next two policy reviews followed by an extended pause.
Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, also said that CPI inflation broadly remained steady around 7%, bringing the Q1 FY23 average to 7.3%—marginally lower than the RBI’s projections of 7.5%. Nonetheless, inflation is expected to remain elevated with only a gradual descent through the rest of the year.
While the softening global commodity prices provide some relief, the gains will be limited due to a weakening rupee, she said. Bhardwaj expects 85-110 basis points of additional rate hikes in the coming few meetings to bring the repo rate toward 5.75-6% by the end of FY23.