At above 7%, retail inflation stays stubborn

India’s retail inflation inched lower to 7.01% in June, from May’s 7.04%, but stayed stuck above the 7% mark for the third straight month. Price gains also exceeded the RBI’s upper tolerance limit of 6% for the sixth month.

Rural inflation edged up to 7.09%, from 7.08% in May, while urban consumers faced a 6.92% price rise, as per the Consumer Price Index released on Tuesday. Food price inflation, as per the Consumer Food Price Index, eased to 7.75%, from 7.97%, but remained above 8% in urban areas, at 8.04%.

Higher costs for cereals, and vegetables such as tomatoes, as well as milk and meat, clothing and footwear and services, were balanced out by slower price gains in edible oils and fuel, following excise and import duty cuts.

Finance Minister Nirmala Sitharaman emphasised the need to keep a constant vigil on prices and sustain growth impulses.

“ Till the start of the second half… the central bank and the government will have to be extremely mindful and watchful of price movements. I will keep monitoring (inflation) item by item,” she said.

The Minister expressed the hope that the monsoon would be favourable for the farm sector and result in a good crop, adding that it would also help ensure rural demand remained intact. The government’s pointed attack on inflation would, however, need to continue for a while, Ms. Sitharaman stressed.

Edible oil inflation slowed to 9.36%, slipping below double digits for the first time in 27 months, while transport and communication inflation eased to 6.9% in June, from 9.47% in May, reflecting the full impact of the excise duty cuts on petrol and diesel. “Retail inflation has now averaged 7.3% in the first quarter of 2022-23, slightly lower than the RBI’s forecast of 7.5%,” observed D.K. Srivastava, EY India’s chief policy advisor.

“There is not much relief for the low-income consumer budgets with inflation in clothing and footwear at higher levels of 9.2% and 11.9%, respectively, in June. Fuel and light inflation also increased to 10.4% in June as compared to 9.5% in May. Inflationary pressures thus continue unabated due to global supply-side disruptions and consequent pressures on prices of global crude and primary products,” he said. The central bank is expected to continue to raise interest rates by about 50 to 60 basis points.

ICRA’s chief economist Aditi Nayar said the services sub-indices reflected a pick-up in inflation that needed to be watched very carefully, adding that she, however, expects overall inflation would likely slip back below 7% in the coming months.