Retail inflation at 7.01% in June, still above RBI's target band

For the sixth month in a row the retail price inflation stayed well above the RBI's upper tolerance limit of 6%

Jul 12, 2022 08:00 pm

India's retail inflation moved from 7.04% in the previous month to 7.01% in June.

However, in June 2021, the retail inflation stood at 6.26%. The consumer price-based inflation (CPI) has breached the upper limit of RBI's tolerance band, ranging from 2-6%, for the sixth consecutive month and has remained above 7% for third consecutive month.

Soaring global commodity prices have kept retail inflation above the RBI's 6% upper tolerance range so far this year. A weakening rupee has exacerbated the issue further. The currency is already down over 6% for the year due to higher oil prices - India's biggest import. The rupee today hit a new low of 79.66 against the US dollar.

"Inflation remained almost flat in June at 7% on the back of elevated food prices while fuel costs provided some respite as the impact of excise duty cuts seeped in. “While both Brent crude and vegetable oil prices have come down globally, the critical bit for food inflation will now be the performance of the monsoons, which so far is showing encouraging signs in terms of distribution and sowing progress," said Sakshi Gupta, Principal Economist, HDFC Bank.

A slight easing in food prices helped bring down retail inflation a tad lower. Inflation in the food basket in June 2022 was 7.75 %, compared to 7.97% in the preceding month, according to government data.

Separate data showed that India's industrial production rose 19.6% in May 2022. According to the index of industrial production (IIP) data by the National Statistical Office (NSO), the manufacturing sector's output grew 20.6% in May 2022.

The Reserve Bank of India or RBI in its June policy review had raised its inflation projection for this fiscal year to 6.7% from 5.7% earlier. The central bank expects retail inflation remain above the bank' upper tolerance band in the first three quarters of the financial year. The bank's raised rates by 50 basis points in June after a 40-bp increase in May, to prevent growing inflationary pressure from becoming broad-based.

Speaking at an economic forum Governor Shaktikanta Das said RBI will continue calibrating policy to preserve and foster macroeconomic stability while bringing down inflation and will remain flexible in its approach.