India’s retail inflation based on the Consumer Price Index hit an 18-month high of 4.38% in June, rising above the Reserve Bank of India’s medium-term target of 4% for the first time since January 2025.
The broadbased rise in CPI inflation, from 3.93% in May, signalled generalised price pressures building in the economy. June inflation came in slightly higher than the median of forecasts, which were in a broader band than usual.
While food and fuel turned costlier, core inflation also edged up. Food inflation rose to 5.32% in June from 4.78% in May, while core inflation, which excludes fuel and food items, increased to 4.1% last month from 3.8% in May.
Eating out continued to become more expensive amid higher cooking gas prices. Food and beverage serving services inflation rose to 6.94% in June from 5.77% in May.
Transport inflation jumped to 4.31% last month, from 1.75% in May, reflecting the impact of the petrol and diesel price hikes in May. Petrol inflation jumped to 7.52% in June from 3.11% in May, while diesel inflation increased to 8.41% last month from 3.36% in May.
The fall in global oil prices subsequent to the US-Iran ceasefire announcement might have made further hikes in pump prices unnecessary at this point, according to Shilan Shah, economist at Capital Economics. “But the earlier (fuel price) hikes will still add around 0.5 percentage points to headline inflation over the next year,” he said.
CPI inflation averaged 3.9% in the June quarter, lower than the RBI’s projection of 4.2% for the quarter. Inflation is projected to rise moving ahead due to an increase in food prices and the impact of the US-Iran conflict, which has flared up again pushing crude oil prices and freight costs higher.
The RBI in June projected CPI inflation to rise to 5.1% in the September quarter and average 5.1% in 2026-27 (Apr-Mar). Even as the RBI projected higher inflation going ahead, its Monetary Policy Committee (MPC) left the repo rate unchanged at 5.25% in June.
Some economists expect the MPC to raise interest rates in the coming months to combat the rising inflation. “The central bank left interest rates unchanged at its meeting last month, but with inflationary pressure building, we think it is only a matter of time before the central bank begins a hiking cycle,” Shah of Capital Economics said. “A first hike in August is a growing possibility.”
RBI Governor Sanjay Malhotra last month said it was premature to talk about raising interest rates. The central bank was watching for the second round impact of higher oil prices on inflation before taking a call on rates, Malhotra had said.
Minutes of the June MPC meeting showed other panel members also favored a “wait and watch” approach before moving to raise interest rates.
“While policymakers will remain vigilant to weather-related and geopolitical risks, the lack of discernible spillovers into demand should limit any market tendency to bring forward rate hike expectations,” said Radhika Rao, senior economist, DBS Bank.
