Media365
India’s retail inflation accelerated to 4.38 per cent in June, breaching the Reserve Bank of India’s (RBI) medium-term target of 4 per cent for the first time in 16 months, according to government data released on Monday. The reading has reinforced expectations that the central bank may have to consider raising interest rates if price pressures persist.
The June inflation print was slightly higher than the 4.3 per cent estimate in a Reuters poll of economists and marked the highest reading since the consumer price index (CPI) series was revamped in January.
The rise in inflation was largely driven by higher food and fuel prices amid delayed monsoon rains and disruptions in global energy supplies following renewed tensions in the Middle East.
Food inflation climbed to 5.32 per cent in June from 4.78 per cent in May as weak monsoon showers weighed on agricultural output prospects. Economists warn that the risk of El Niño, which is typically associated with below-normal rainfall in India, could further strain crop production and keep food prices elevated in the coming months.
Fuel prices also contributed to the increase after state-owned oil marketing companies raised retail fuel prices four times in May. As a result, transport inflation accelerated to 4.31 per cent, compared with 1.75 per cent in May.
India’s southwest monsoon accounts for nearly 70 per cent of the country’s annual rainfall and plays a crucial role in agricultural production and rural incomes. Nearly half of India’s farmland remains rain-fed, making crop output highly sensitive to rainfall patterns.
The RBI had kept the benchmark repo rate unchanged at 5.25 per cent in its June monetary policy review but raised its inflation forecast for the current financial year to 5.1 per cent from 4.6 per cent, citing risks from supply-side shocks.
Meanwhile, renewed geopolitical tensions in the Middle East have pushed global crude oil prices higher, posing fresh inflation risks for India, the world’s third-largest importer and consumer of crude oil.
The Centre, in its latest monthly economic report released before the recent escalation in the Middle East, noted that easing prices of global commodities such as crude oil and urea could help contain imported inflationary pressures. However, the recent rebound in oil prices may complicate that outlook and keep inflation risks elevated.
