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India’s retail inflation rate in June reversed its five-month downward trend owing to an increase in food prices, and crossed the 5 per cent mark, prompting analysts to predict an extended pause on policy rates by the Reserve Bank of India (RBI).
Separately, growth in the index of industrial production (IIP) rose to a seven-month high in May to 5.9 per cent.
The set of macro-economic data comes ahead of the FY25 Budget, to be presented by Union Finance Minister Nirmala Sitharaman on July 23.
The data released by the National Statistical Office (NSO) on Friday showed the spike in the food inflation rate to 9.36 per cent pushed the headline retail inflation figure to a four-month high of 5.08 per cent in June from 4.8 per cent in May.
Meanwhile, the headline IIP grew at 5.9 per cent in May from the downward revised figure of 5.4 per cent in the preceding month.
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The rise in food prices was driven by acceleration in the prices of cereals (8.75 per cent), fruit (7.15 per cent), vegetables (29.32 per cent), and sugar (5.83 per cent).
Though the price of pulses (16.07 per cent) decelerated over the preceding month, it still saw a double-digit rise in June.
On the other hand, prices of protein-rich items like meat and fish (5.39 per cent) and eggs (3.99 per cent) decelerated during the month.
Rajani Sinha, chief economist, CARE Ratings, said inflation in the food basket inched up because prices of staple vegetables rose sharply and this was attributed to both supply-side and demand-side factors.
“Last year’s reduced output, the impact of heatwaves in May-June on the shelf life of vegetables, and heightened demand due to the festival season last month contributed to the sequential uptick in prices. The sustained inflationary trend in some non-perishable food categories, such as cereals, pulses and spices, raises concern about the potential broadening of price pressures due to their inherent stickiness,” she added.
Core inflation, which excludes food and fuel components, had remained benign (3 per cent) as the rise in prices of clothing and footwear (2.73 per cent) and services like recreation (2.39 per cent), education (3.57 per cent), and health (4.13 per cent) saw deceleration during the month.
Meanwhile, housing (2.69 per cent) and fuel (3.66 per cent) saw slight acceleration in the prices.
RBI Governor Shaktikanta Das on Thursday said with retail inflation still above 4 per cent, any talk about a cut in interest rates would be too premature.
“The last (May) CPI print was 4.7 per cent. As per various surveys, it (June CPI inflation) is likely to be close to 5 per cent. So, when we are at 5 per cent and our target is 4 per cent, I would feel it is too premature to talk about interest rate cuts,” Das said in an interview to CNBC.
Stating similar views, Madan Sabnavis, chief economist, Bank of Baroda, said there would be no action on rates by the RBI and the monsoon progress would determine whether inflation would be back to less than 4 per cent in the September quarter, as projected by the central bank.
In the IIP, growth was led by acceleration in manufacturing (4.6 per cent) and electricity (13.7 per cent) during May. However, growth in mining decelerated marginally to 6.6 per cent during the month.
The data showed that six out of 23 manufacturing sectors in the IIP, including food products, textiles and chemical products, registered a contraction in output growth during May. Meanwhile, in the use-based categories, growth in primary goods (7.3 per cent), consumer durables (12.3 per cent) and consumer non-durables (2.3 per cent) accelerated during the month, while growth in capital goods (2.5 per cent), intermediate goods (2.5 per cent) and infrastructure (6.9 per cent) segment decelerated.
“Given the volatility in the growth numbers for consumer non-durables in the recent months, it remains to be seen if this improvement is sustained. Consumption recovery faces headwinds from high food inflation. From the rural demand perspective, the prospects of good monsoon and beginning of kharif sowing augur well for demand,” added Sinha.
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