Wednesday, 09 Oct, 2024
By: Yash Gupte
The urban inflation also surged to 4.96 percent from 4.33 percent in May. A similar trend was witnessed in the case of rural inflation which climbed to 4.72 percent from 4.23 percent in May 2023. Image Source: IANS
The rise in inflation was driven by a sudden increase in food inflation to 4.49 percent in June from 2.96 percent in May 2023, due to the high increase in the prices of items like cereals, pulses, milk and tomatoes.
India’s retail inflation which is measured by the Consumer Price Index (CPI), in June increased to a three month high of 4.81 percent from 4.25 percent in May 2023. The National Statistical Office (NSO) released the All India Consumer Price Index (CPI) and corresponding Consumer Food Price Index (CFPI) for June 2023. The rise in inflation was driven by a sudden increase in food inflation to 4.49 percent in June from 2.96 percent in May 2023, due to the high increase in the prices of items like cereals, pulses, milk and tomatoes. Consumer price index is used in calculating the retail inflation in the economy by tracking the changes in prices of most commonly used goods and services. This means that higher the CPI, higher the inflation which occurs due to the rise in prices of goods and services. The urban inflation also surged to 4.96 percent from 4.33 percent in May. A similar trend was witnessed in the case of rural inflation which climbed to 4.72 percent from 4.23 percent in May 2023.
he government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The retail inflation has come down to its lowest level since December 2021. March has been the first month in the calendar year 2023 which has witnessed the CPI falling below the 6 percent mark. According to experts, the inflation is expected to remain below 6 percent in the coming months helped by a high base, which may allow RBI to maintain pause in the next monetary policy review in June.
The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was recently increased on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. The RBI increases the repo rate as a measure of tight monetary policy to counter inflation. Repo rate is the interest rate at which the central bank of a country lends money to commercial banks. In the event of inflation, central banks increase repo rate as this restricts the commercial banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in reducing inflation.
The Reserve Bank of India has put a hold to its repo rate hike spree. In its second bimonthly monetary policy meeting of FY24, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) made the decision to maintain the repo rate at 6.5 percent. By a vote of 5 to 1, the MPC decided to keep concentrating on the removal of accommodations. The consumer price inflation dropped between March and April 2023 and went into the tolerance band, decreasing from 6.7 percent in 2022–2023, according to RBI Governor Shaktikanta Das, who also announced the policy.
Source: Ministry of Statistics and Programme Implementation
Compared to a decline of 8.1 percent in May, the inflation rate for vegetables saw a drop of 0.93 percent. Food and beverage and fuel segment inflation rates were 4.63 percent and 3.92 percent, respectively. The inflation rate for cereals increased slightly from 12.65 percent in May to 12.71 percent.
When announcing the second monetary policy committee (MPC) stance for the fiscal on June 8, the RBI forecast CPI inflation for the current fiscal (FY24) at 5.1 percent. The rate-setting panel chaired by RBI Governor Shaktikanta Das expects inflation to be 4.6 percent in the first quarter of fiscal 2023–2034 (Q1FY24).
Aditi Nayar, Chief Economist at ratings firm ICRA said, “Owing to the below normal rains in June 2023, kharif sowing was 8.7 percent lower on a YoY basis as on July 7, 2023. Given that 50 percent of the total kharif sowing takes place in the month of July, well distributed rainfall in the ongoing month across all regions will be critical to replenish reservoirs and accelerate the pace of kharif sowing. Amidst the ongoing excess rainfall in North India, the surge in the prices of perishables, particularly vegetables, is likely to harden the food inflation further in the immediate term. Besides, the impact of El Nino on monsoons and sowing in India needs to be carefully monitored.” She further added that the retail inflation can shoot up to the uncomfortable level of 5.3-5.5 percent in July due to the spike in vegetable prices.
"In June, the jump in vegetable prices, stiff cereals inflation and a sharp rise in pulses inflation pushed headline inflation up after two months of softening. While seasonal factors in these items were leading to a gradual uptick, weather-disruption amplified the rise in food inflation," said Dharmakirti Joshi, Chief Economist, CRISIL Ltd.
The inflation rate crossed the RBI’s threshold of 6 percent in January (6.01 percent), which quickly jumped to 6.95 percent in March and hit the peak at 7.79 percent in April. This indicates that the prices of goods and services increased drastically in March and April. The primary reason behind the drastic increase was the disruption in supply chains caused by the Russia-Ukraine conflict. There was a drop in CPI in May, June and July as the government banned the export of wheat and sugar in order to increase its availability in the local market and cool down its prices. The retail inflation measured by the CPI came down below the mark of 6 percent in November for the first time in 2022. The fall in food prices and the implementation of the RBI’s tight monetary policy under which it has been increasing the repo rate had contributed in the decline in retail inflation in the month of November and December. But the trend was again reversed in the month of January 2023 as the retail inflation breached the mark of 6 percent and jumped to 6.52 percent. But in the month of March, the inflation declined to 5.66 percent, the lowest in 15 months and it further dropped to 4.25 percent in May, lowest in 25 months.
Madan Sabnavis, Chief Economist at Bank of Baroda said, “The “tomato shock” would mean vegetable price inflation would resurge sharply this month, while cereals and pulses will also remain under pressure as the area under irrigation is lower so far this year.”
Talking about the inflation in states, Tamil Nadu (6.41 percent) followed by Uttarakhand (6.32 percent), Bihar (6.16 percent) and Haryana (6.1 percent) recorded the highest inflation rate. While the lowest inflation was reported from Chhattisgarh (1.24 percent) followed by Delhi (2.04 percent), Assam (2.49 percent), Madhya Pradesh (2.98 p
