Consumer inflation rises to 8-month high in June

Consumer price inflation rose to eight-month high of 5.4 per cent in June from 5.01 per cent in May on the back of the rise in food prices, according to data released by Ministry of Statistics and Programme Implementation (MOSPI) on Monday.

Food price inflation which was subdued with prices rising by 4.8 per cent in May surged up to 5.48 per cent in June. Vegetables and pulses and products contributed to the rise in the prices with the index for both shooting up to 139.2 and 137.4 in June from 130.9 and 130.5 in May, respectively. The food and beverage prices index increased from 125 in May to 127.3 in June.  

The price rose despite the better-than-normal monsoon in June, while there were expectations of another year of drought given the El Nino threat. 

While food prices have edged up a bit they still remain within the comfort zone of the Reserve Bank which is targeting a flexible inflation rate in the 2-6 per cent range. The RBI, which has already delivered three rate cuts of 25 bps each this year, in its last meeting had said that it will closely monitor developments on the monsoon front before deciding on future course of rate cuts. 

Though the surge in food prices is expected to keep RBI from cutting rates, softening crude prices may prevent the inflation from going beyond the 6 per cent target that the bank has set for January 2016. The global crude prices surged to $66 per barrel in April have eased to $58 due to fears of a slowdown in China. 

While better-than-expected and depressed growth of industrial output makes for a strong case for slashing rates further, RBI governor Raghuram Rajan may put the rate cut on hold further given the spike in food prices. 

RBI is expected to meet for the third bi-monthly review on August 4.

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