Retail inflation for June 2024, as measured by Consumer Price Index (CPI), is expected to inch up to 5.1 per cent for June 2024 on the back of elevated vegetable prices, say economists.
This is against the one-year low of 4.75 per cent in May 2024 and 4.83 per cent recorded in April 2024.
Retail inflation data for June 2024 will be released by the National Statistics Office (NSO) on Friday.
Food inflation for June is expected to remain on the higher side at about 8.5-8.7 per cent for June 2024, said economists. In May 2024, food inflation was 8.69 per cent, marginally down from 8.7 per cent in previous month.
With the expected CPI inflation of 5-5.1 per cent much higher than the RBI’s target of 4 per cent, most economists don’t see the central bank’s monetary policy committee (MPC) going in for any rate cut at its August 2024 review meeting.
On Thursday, RBI Governor Shaktikanta Das has also said that it is too early to talk about repo rate cut, especially when surveys indicate that June 2024 CPI print is likely to be around 5 per cent.
Under the inflation targeting framework adopted by India, the government has tasked the RBI to ensure the CPI inflation remains at 4 per cent with a margin of 2 per cent on either side.
RBI had recently projected the CPI inflation for 2024-25 at 4.5 per cent, with Q1 at 4.9 per cent, Q2 at 3.8 per cent, Q3 at 4.6 per cent and Q4 at 4.5 per cent.
ECONOMISTS’ TAKE
Aditi Nayar, Chief Economist and Head-Research & Outreach, said that higher vegetable prices amidst a protracted heatwave and uneven progress of the monsoon across the country are likely to have contributed to a rise in the CPI inflation to 5.1 per cent in June 2024.
“This will be followed by a transient, base-effect led dip in inflation in July 2024, followed by a normalisation over the rest of the quarter,” she added.
Madan Sabnavis, Chief Economist, Bank of Baroda, said that he sees CPI inflation for June 2024 to come around 4.9 per cent with primary reason being food inflation continuing to be high. “In particular, the combination of potato, tomato and onions besides pulses (particularly tur) are a picture of worry.
“Food inflation will continue to be in 8 percent region and we will have CPI inflation closer to 4.9 per cent”, he added.
Sabnavis said that he does not expect any repo rate cut in the MPC’s August meeting.
Radhika Rao, Executive Director and Senior Economist, DBS Bank, said: “A delayed start to the southwest monsoon and prolonged heatwave is likely to have pushed June inflation to 5 per cent year-on-year, higher than the trend anticipated earlier in the month”.
As June progressed vegetable prices began to rise sharply, alongside pressure from a telecom tariff price hike, and a moderate rise in Kharif MSPs, she noted.
At this juncture, with rain regaining momentum into July, vegetable prices are expected to moderate, benefiting from the crop’s short growth cycle. Base effects will also push July-August inflation to sub-4 per cent, allaying concerns.
“Nonetheless, the RBI has already signaled that they will look through base effect-driven swings in readings, instead of focusing on sticky food pressures. We expect rates to stay on hold this year”, Rao added.
