There are two broad takeaways from the June inflation print that was released on Wednesday. On the back of a high base, retail inflation, as measured by the Consumer Price Index (CPI), rose 4.81% in June, after four consecutive months of moderation. One, spiralling food prices are pushing retail inflation and analysts estimate that consumers will be pinched by higher food inflation till at least September. Food inflation, as measured by CPI, was at 4.49% in June, compared to 2.96% in the previous month. In contrast, core inflation — which measures the non-food non-fuel components of the CPI basket — remained flat at 5.1% in June.
The spike in the prices of perishable food — led by spices, cereals, vegetables and eggs — is largely seasonal and should subside by the fourth quarter, helping temper inflation. But whether this will be enough for the Reserve Bank of India’s monetary policy committee to hold rates in its next meeting remains to be seen.
And two, among other items in the CPI basket, food is the one item most sensitive to political pressures. In recent months, the Modi government has effected a slew of anti-inflation measures to cool prices but with mixed results. With a clutch of key assembly elections coming up in largely agrarian states, it will be important to check the government’s temperature on further price controls and the need to strike a balance with farm incomes. A number of states continue to track inflation higher than the national average. If rainfall continues to be erratic, swinging between large deficits and a few days of torrential showers, it may play havoc with the summer crop sowing, seeding more volatility in food prices.
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