Informist, Monday, Jul 8, 2024

By Shubham Rana

NEW DELHI – India's CPI inflation is seen at 4.8% in June, little changed from 4.75% in May as higher food prices likely offset the statistical effect of a favourable base, according to an Informist poll of 20 economists. Headline inflation was 4.87% in June last year.

Estimates in the poll ranged from 4.5% to 5.2%. The National Statistical Office is scheduled to release CPI inflation data for June at 1730 IST on Friday.

The base effect is such that if the overall index remains unchanged from the previous month, headline inflation would fall to 3.65%. An inflation rate of 4.8% in June would mean a 1.1% month-on-month increase in the overall index, which would be the highest sequential rise in 11 months. A 1.1% month-on-month rise would also be higher than the historical average sequential rise of 0.9% in June.

The month-on-month rise is driven by higher food prices, primarily vegetables and pulses, economists said. "The seasonal price increase in food prices has begun, with vegetable prices surging in June," UK-based bank Barclays, said in a report.

According to data from the Department of Consumer Affairs, prices of tomato jumped 29.1% month-on-month in June. Onion prices rose 15.5% on month in June, while potato prices increased 9.2%.

Prices of pulses were also on the rise last month. Tur prices rose 3.9% month-on-month in June while prices of gram were up 3.2%. Prices of other pulses such as urad, masoor, and moong also rose sequentially in June. "Prices of other food items, such as cereals and milk, also rose faster month-on-month, though the magnitude was fairly contained," economists at Barclays noted.

Core inflation, which strips out food and fuel items, is expected to have risen for the first time after 18 months in June, economists said. Core inflation was at a record low print of 3.1% in May.

"Core inflation has likely started to edge up after having eased for the last 18 months," noted Anubhuti Sahay, head of India economic research at UK-based bank Standard Chartered. Sahay expects core inflation to move above 4% in Oct-Dec and near 5% by March.

"While the recent increase in telecom tariffs has added to pressure on core inflation, the fading of favourable base effects and a likely pick-up in consumption demand assuming a normal monsoon are likely to be the key drivers," Sahay said in a report.

If inflation in June comes at 4.8%, as projected, the average for Apr-Jun would be 4.8%, 10 basis points lower than the Reserve Bank of India’s estimate of 4.9% for the quarter.

CPI inflation has remained above the RBI's medium-term target of 4.0% for 56 consecutive months now. The central bank has projected CPI inflation to moderate to 3.8% in Jul-Sep, before rising again to 4.6% in Oct-Dec and 4.5% in Jan-Mar.

The RBI has projected CPI inflation to average 4.5% in 2024-25 (Apr-Mar), compared with 5.4% last year. Market participants expect the RBI to start cutting repo rate in Oct-Dec, after the US Fed cuts interest rates. The RBI's Monetary Policy Committee is scheduled to meet on Aug 6-8.

Following is a summary of the poll on CPI inflation in June, with details of estimates by respondents, in ascending order:

Range of expectations: 4.5-5.2%

Mean: 4.8%

Median: 4.8%

Mode: 4.9%

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Maheswaran Parameswaran

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