Headline inflation has slowed in India mainly because of lower food prices, but the volatility of these prices remains an issue, Moody’s Ratings said.
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Volatile and high food prices remain a concern, but base effects may help temper India’s retail inflation pace in June and possibly even cool it below 4% over July and August, rating agencies and economists reckon.
Retail price rise had touched a 12-month low of 4.75% in May, even though food inflation stayed stuck at 8.7% for a second straight month. The National Statistical Office will likely release the Consumer Price Index data for June on Friday.
Headline inflation has slowed in India mainly because of lower food prices, but the volatility of these prices remains an issue, Moody’s Ratings said in a report this week. The agency also flagged stronger wage gains of more than 5% year-on-year.
The prolonged heatwave and the delayed start to the southwest monsoon was likely to have pushed June’s inflation to 5%, said Radhika Rao, executive director and senior economist at DBS Bank. Vegetable prices began to rise sharply as the month progressed, while telecom tariffs were also raised, she pointed out.
With the monsoon regaining ground this month, vegetable prices were expected to moderate, and base effects would also push July-August inflation to sub-4%, she estimated. Ms. Rao, however, expects no interest rate cuts this year in light of the RBI’s signal that they would look through base effect-driven swings in readings and focus on sticky food pressures.
In June 2023, retail inflation stood at 4.9%, before it surged to 7.4% and 6.8% in July and August, respectively.
India Ratings and Research expects retail inflation to have moderated to a 13-month low of 4.5% in June, due to a combination of the favourable base effect and a moderation in inflation of key items. But wholesale prices are projected to quicken at a 3.5% pace, from May’s 15-month high of 2.6% due to an unfavourable base.
“Prices of food items such as onion and potato continues to be high, despite softening of inflation in items such as tomato, pulses, milk and sugar,” the agency noted. Tomato inflation was at a six-month low of 29% as per Department of Consumer Affairs data for last month, it added.
