BENGALURU: India’s retail inflation is likely to remain stable in June but is well above the Reserve Bank of India’s tolerance limit for the sixth month as lower fuel and cooking oil prices offset higher services and food costs. Reuters survey found. Despite the recent significant increase in food prices, despite rising at the fastest pace in almost two years, overall inflation was partially contained after the government cut taxes on petrol and diesel and imposed restrictions on food exports.
But most economists warned that the near-term outlook was highly uncertain as a heatwave last month pushed up vegetable prices. The government has also cut wheat production estimates due to drought in North India.
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Inflation as measured by the Consumer Price Index (CPI) in a July 4-8 Reuters poll of 42 economists held steady at 7.03% in June, against 7.04% in May. Forecasts for the data, due 1200 GMT on Tuesday 12 July, were in the range of 6.45%-7.70%. If realized, inflation will be above 7% for the third consecutive month and above the RBI’s upper tolerance target of 6% for the sixth month.
Rahul Bajoria, India’s chief economist at Barclays, said, “While many goods and services categories are likely to report higher inflation in June, fiscal measures taken by the government will help prop up domestic prices in food and other sectors. ” , “Still, the cost of services is running high, and a passthrough is evident from higher commodity prices in many regions.”
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The Reserve Bank of India (RBI) has hiked interest rates by 90 basis points to 4.9% so far this year and is set to add more in the coming months. RBI Governor Shaktikanta Das said recently that inflation was unlikely to fall within the top end of its mandated target band till December.
The survey showed that wholesale price inflation witnessed only marginal growth from a three-decade high of 15.88% in May to 15.50%. While consumer price inflation appears to be stabilizing, higher global crude oil prices led to broader trade and the current account deficit pushed the rupee to a record low of $79.375 recently, raising concerns over higher imported inflation. A recent Reuters poll asked a separate question what the rupee’s lowest point against the dollar would be during the next three months, giving an average of 80 with a range of 79.50-85.00/$.