Economists expect price pressures to intensify further in June, driven by the continued pass-through of earlier increases in transport and cooking fuel costs amid continued supply disruptions due to the West Asia conflict.
Rating agencies ICRA and India Ratings and Research (Ind-Ra) expect Consumer Price Index (CPI)-based inflation to rise to 4.5% in June, moving above the midpoint of the Reserve Bank of India’s medium-term target.
Sakshi Gupta, principal economist at HDFC Bank, said the Rs 29 increase per 14.2-kg liquefied petroleum gas (LPG) cylinder, effective June 7, could add 6.3 basis points to headline inflation in June. One basis point equals 0.01 percentage point.
On a monthly basis, retail inflation increased by 0.8% in May, the fastest pace in 16 months, official data released on Friday showed. Inflation stood at 3.5% in April.
“The uptick in May was entirely driven by food and beverages, transport, restaurants, and personal care categories,” said Rahul Agrawal, principal economist at ICRA.
Transport, restaurant and personal care inflation reflected the impact of higher petrol and diesel prices, increased commercial LPG cylinder rates, and higher customs duties on gold and silver, he said.Economists expect the central bank to start a policy rate hike from October/December onwards as the inflation is expected to move closer to the upper band of the 2-6% target level in the second half of this fiscal year.
Gupta of HDFC Bank projects a cumulative rate hike of 50 bps during the second half of FY27. She expects the central bank to remain on pause in the next Monetary Policy Committee meeting in August.
The RBI kept the policy rate unchanged at 5.25% in the June meeting.
Megha Arora, director at Ind-Ra, echoed similar views and said the key indicators to monitor include currency and liquidity besides crude oil price.
Rural Inflation
Inflation continued to rise faster in rural areas. Food inflation rose to 4.8% in May from 4.2% in April. Rural food inflation stood at 4.9% against 4.7% in urban areas.
Overall, rural inflation climbed to 4.3% in May from 3.7% in April, while urban inflation increased to 3.5% from 3.2%.
Across states, Telangana recorded the highest inflation of 6.2%, followed by Tamil Nadu (5.1%), Andhra Pradesh (4.9%), Karnataka (4.6%) and Odisha (4.5%).
Among the 12 divisions, personal care, social protection and miscellaneous goods and services saw the highest inflation at 18.5%. Next was restaurants and accommodation services at 5.8%, followed by paan, tobacco and intoxicants (4.8%), and food and beverages (4.6%).
Transport inflation turned positive at 1.75% in May compared with a contraction of 0.01% in April.
Of the 358 items tracked, silver jewellery recorded the steepest price rise at 155.2%, followed by tomato (48.4%), gold, diamond, platinum jewellery (40.9%), ginger (32.5%), and raisin and monacca (22%).
In contrast, potato and onion prices declined by 23.7% and 2.3%, respectively.
Data also showed that motor car and jeep prices fell 7.2% year-on-year in May, while motorcycle and scooter prices declined 3.6%.