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Retail Inflation at 6.26% in June; Above RBI Target Band for Second Straight Month

Food inflation increased to 5.15 per cent in June from 5.01 per cent in May

Food inflation increased to 5.15 per cent in June from 5.01 per cent in May

The inflation stayed over and above the Reserve Bank of India’s (RBI) threshold of 6 per cent

India’s retail inflation dropped to 6.26 per cent in the month of June, according to the data released by the Ministry of Statistics & Programme Implementation (MoSPI) on Monday. The inflation stayed over and above the Reserve Bank of India’s (RBI) threshold of 6 per cent. The inflation climbed to 6.30% in May, highest in the last six months. This was mainly due to surge in fuel prices and food items last month.

Inflation based on Consumer Price Index (CPI) remained high due to surge in petrol, diesel prices and costlier food items. Food inflation increased to 5.15 per cent in June from 5.01 per cent in May. Vegetables inflation fall to -0.7% in June on a monthly basis. Housing inflation stayed at 3.75 per cent in this month. Pulses inflation increased 10.1% month-on-month basis. Clothing and footwear inflation increased to 6.21 per cent in June. ‘Fuel and light’ inflation stayed high at 12.68 per cent during the month.

“It has been some time since persistent inflationary trend on account of elevated global commodity prices and increasing oil prices are reflecting on domestic items too. In particular, high petroleum product price is exerting upward pressure on transport, food and other items in domestic consumption basket that has seen a sharp price rise in recent periods. This is the second consecutive month when the consumer inflation level at 6.3% YoY in June 2021 is above RBI’s comfort zone of up to 6% YoY and hence a cause for attention," said  Vivek Rathi, director research, Knight Frank India.

“Overall, The June print is a positive surprise and should augur well for the inflation estimates ahead, and could also push the inflation average for the year near RBI’s average if the momentum remains tamed. We remain watchful of pass through of impending cost push pressures in core goods inflation, while re-opening-led ensuing demand revival in select contact-sensitive household services could pressure core services inflation ahead. However, MPC may still choose to look through the spike in inflation in the near term, with the monetary reaction function currently hinging more on growth revival becoming sustainable," said Madhavi Arora, lead economist, Emkay Global Financial Services.

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The Industrial output for the month of May rose 29.3 per cent due to a low-base effect, according to the data revealed by ministry. Almost all the sectors under the IIP category registered a sharp growth in May. “In case of IIP, the base effect of the stringent national lockdown last year continues to reflect on the 29.3% YoY growth seen in May 2021. Recently announced fiscal stimulus measures for the supply side will support industry to come out of the second wave impact. However, only sustainable revival in consumption demand can ensure improved production capacity utilisation to reflect upon IIP trends. Albeit with the disturbance of base effect, there are some early signs on improvement but impending third wave is keeping market participants on tenterhook,” Rathi added.

The government has asked the central bank to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 2026. The RBI has projected the CPI inflation at 5.1 per cent during the ongoing financial year 2021-22.

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first published:July 12, 2021, 17:46 IST