Inflation Leaps to 8-month High on Costly Foods

Surge in retail commodities prices in June may limit the room for RBI to cut rates

Published: 14th July 2015 06:46 AM  |   Last Updated: 14th July 2015 06:46 AM   |  A+A-

NEW DELHI: The retail inflation rose to 5.4 per cent in June, recording the highest level in the last eight months, from 5.01 per cent in the month of May as food prices increased amid fear of deficient monsoon rainfall during the year.

After a month of adequate rain in June, monsoon rainfall in India was 51 per cent less than normal in the first week of July, according to the India Meteorological Department. While all regions of the country received less-than-normal rainfall, central and peninsular India were the worst hit. The performance of the monsoon in July and August will be important for the sowing season.

Inflation.jpgThe Consumer Price Index for June stood at 5.48 per cent, compared with 4.80 per cent last month, and 7.21 per cent in the same month last year. The inflation for fruit and vegetables was 3.51 per cent and 5.37 per cent, respectively, in June. Among others, milk and its products were costlier by 7.18 per cent in June over the same month last year.

The prices of sugar and confectionery items fell by 8.55 per cent in June compared to same month last year.

Samiran Chakraborty, economist at Standard Chartered said the steep rise in food inflation could have been driven by higher onion and potato prices, and also prices of pulses. Prices of protein-rich items such as ‘meat and fish’ rose by 6.99 per cent, while spices turned costlier by 9.71 per cent.

Rising prices could also halt the Reserve Bank of India’s monetary easing efforts, hurting a fledgling economic and industrial recovery. RBI, in its monetary policy review last month, said monsoon rainfall is the biggest uncertainty facing the economy.

Anand James, co-head research desk, Geojit BNP Paribas says, “IIP figures continued positive growth, despite the slow down, but it would be the inflation figures that is likely to give momentum to further moves, as RBI’s rate announcement is approaching.”

RBI reduced its policy rate by 25 bps in its monetary policy last month and hinted at a pause in further policy easing. Since January, it has cut the key policy rate thrice by 75 bps and is scheduled to announce third bi-monthly monetary policy on August 4.

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