New Delhi, July 12: Retail inflation dropped marginally to 7.01 percent in June mainly due to a slight easing in prices of vegetables and pulses, though it remained above the Reserve Bank’s comfort level for the sixth month in a row.
The consumer price index (CPI) based inflation stood at 7.04 percent in the preceding month of May and 6.26 percent in June 2021.
Inflation in the food basket in June 2022 was 7.75 percent, compared to 7.97 percent in the previous month, as per the National Statistical Office (NSO) data released on Tuesday.
The RBI has the mandate to ensure that inflation remains at 4 per cent, with a margin of 2 per cent on either side. However, retail inflation is ruling above the RBI’s upper tolerance limit of 6 per cent since January 2022.
As per the data, the inflation print in vegetables eased to 17.37 per cent during the month from 18.26 per cent in May, while for ‘pulses and products’ it slowed to (-) 1.02 per cent against (-) 0.42 per cent.
However, the rate of price rise in ‘cereals and products’ moved up to 5.66 per cent, from 5.33 per cent in the preceding month. Inflation in the ‘fuel and light’ category rose to 10.39 per cent as against 9.54 per cent, while that for fruits increased to 3.10 per cent from 2.33 per cent.
Last month, the Reserve Bank in its bi-monthly monetary policy review raised the benchmark repo rate — at which it lends short-term money to banks — by a sharp 0.50 per cent to 4.90 per cent to rein in spiralling prices. It followed an off-cycle meeting on May 4, when the central bank hiked the repo rate by 0.40 per cent.
RBI said the global geopolitical situation remains fluid and commodity markets remain on the edge, rendering heightened uncertainty to the domestic inflation outlook.
However, certain positive developments such as expectations of a normal south-west monsoon and kharif agricultural season, recent supply side measures taken by the government as well as lifting of palm oil export ban by Indonesia may help ease the acute price pressures to some extent, RBI Governor Shaktikanta Das had said in his monetary policy statement.
The apex bank also raised its retail inflation forecast for the current financial year to 6.7 per cent from its previous estimate of 5.7 per cent.
Retail inflation in Q1 FY23 averaged to 7.3 per cent, marginally lower than the RBI’s projections of 7.5 per cent, said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
She said the the Monetary Policy Committee (MPC) is expected to continue to frontload policy rate hikes, especially as global monetary tightening continues. “We expect 85-110 basis points (bps) of additional rate hikes in the coming few meetings to bring the Repo rate towards 5.75 – 6 per cent by end of FY23.”
The RBI has projected retail inflation at 7.4 per cent in Q2 FY23, which will reduce to 6.2 per cent in Q3 and further to 5.8 per cent in Q4.
Aditi Nayar, Chief Economist at ICRA, said the cut in excise duty on petrol and diesel drove the downtrend in the transport and communication sub-index of miscellaneous items, whereas the services sub-indices reported a pickup in inflation that needs to be watched very carefully.