India's retail inflation touches 5-month high of 5.1% this June
India's retail inflation rose to 5.08% in June, marking the first increase in five months, according to government data. This exceeds the previous month's 12-month low of 4.75%. The surge was primarily driven by a rise in food prices due to factors such as heatwaves, below-normal monsoon rains, and higher prices for fruits and vegetables. "Heatwaves in May-June and festive demand have all contributed to the sequential uptick in vegetable prices," stated Rajani Sinha, Chief Economist at CareEdge.
Food inflation nearly doubles, vegetable prices skyrocket
Food inflation, which makes up about half of the overall Consumer Price Index (CPI) basket, jumped to 9.55% in June from 8.69% in May and 4.55% in June 2023. Vegetable prices saw a significant increase with items such as tomatoes, potatoes, and onions experiencing substantial price hikes due to weather-related disruptions in agricultural production. "Onion and tomato have witnessed double-digit sequential growth while potato prices have risen by high single digits in June," Sinha noted.
Rural inflation rises, urban inflation moderates slightly
Rural inflation in India also saw an increase in June, rising to 5.67% from 4.78% in June 2023 and 5.34% in May. Conversely, urban inflation moderated slightly to 4.39% in June from 4.21% in May, and 4.96% in June 2023. Despite these increases, India's retail inflation has remained within the Reserve Bank of India (RBI)'s tolerance band of 2-6%, moving further away from its median target of 4%.
RBI's inflation target and market impact
Earlier in June, RBI Governor Shaktikanta Das stated that India's inflation is reaching its target of 4%, emphasizing the central bank's desire for a gradual and durable process. Despite the rise in inflation, experts believe it will unlikely have any significant negative impact on the Indian stock market. "CPI inflation is likely to edge up to 5% in June from 4.75% in May due to food inflation," said Nirmal Bang Institutional Equities.
