Retail inflation soared to 5 per cent in June compared to 4.87 per cent seen in May, according to data released by the Central Statistics Office (CSO) on Thursday. This amounts to a five-month high in retail inflation, which is calculated on the basis of Consumer Price Index (CPI). The latest jump in consumer inflation comes on the back of a depreciating rupee and skyrocketing fuel prices.
According to the CSO data, fuel and light inflation stood at 7.14 per cent in June as compared to 5.8 per cent in May. The housing inflation was measured at 8.45 per cent against 8.4 per cent in May. Food price inflation came down marginally to 2.9 per cent in June in comparison to 3.1 per cent in May. Clothing and inflation as well as inflation in intoxicants increased marginally in June to 5.67 per cent and 8.05 per cent, respectively.
With rupee hitting its lowest against dollar, prices of imported commodities, ranging from petroleum products to electronics went up, driving consumer inflation up. High crude oil prices also made an impact, considering that India imports majority of its crude oil stock.
With the latest jump, retail inflation is nearing the upper tolerance level of 6 per cent marked by the Reserve Bank of India (RBI). The apex bank had revised its retail inflation estimates upwards last month, estimating it to remain around 4.9 per cent during the first half of financial year 2018-19, before coming down to 4.7 in the second half of the current fiscal, including the impact of House Rent Allowance (HRA) for central government employees.
The recent hike in Minimum Support Price (MSP) for kharif crops announced by the Narendra Modi government is likely to only add to upward movement of inflation numbers. With retail inflation at a high, policy tightening moves could be brought into play.
The monetary policy committee (MPC) of the RBI had hiked the key repo rate by 25 basis points last month for the first time since 2014 citing inflation risks and high oil prices. The upward tick in retail inflation seen in June is likely to force the hand of the MPC to hike the key interest rates for the second time this fiscal when it convenes on July 30 for a three-day meeting. According to reports, economists are expecting one to two more rate hikes during 2018-19.
As per a Bloomberg report, experts were of the opinion before the inflation numbers were released that the five-month high in retail inflation is a peak and favourable base effects will kick in from July, driving inflation numbers down towards RBI's 4 per cent target by December. June was the eighth consecutive month that inflation figures have remained above the RBI's medium-term target of 4 per cent.