IGI Logo

Below the Quote on Perspective on CPI-June 2024 Data by Rajani Sinha, Chief Economist, CareEdge Ratings

”The CPI inflation rose sharply to 5.1% in June from 4.8% in May, higher than market expectations. The inflation in food basket inched up higher led by specific food categories, including vegetables, pulses and cereals. Prices of staple vegetables rose sharply and is attributed to both supply-side and demand-side factors. Last year's reduced output, the impact of heatwaves in May-June on the shelf life of vegetables, and heightened demand due to festive season last month have all contributed to the sequential uptick in their prices. The sustained inflationary trend in some non-perishable food categories, such as cereals, pulses and spices, raises concerns about the potential broadening of price pressures due to their inherent stickiness. However, the fuel and light category remained in deflation and have cushioned the overall inflation.

Core inflation held steady at 3.1% and remains largely benign. Even though food inflation continues to remain a cause of concern, its outlook has brightened due to anticipation of a normal monsoon. However, the temporal and spatial distribution of monsoon and progress of the Kharif sowing would be critical factors to monitor. A good monsoon is crucial for controlling food inflation and ensuring a successful Kharif harvest, especially given the current low reservoir levels.

Globally, commodity prices, which had been rising through the first half of 2024, have eased over the past month. However, external risks emerging from ongoing geopolitical tensions need to be monitored, given the risk they can pose to supply chains and commodity prices. Looking ahead, a favourable base effect is expected to persist until July 2024, helping absorb potential upward risks to price pressures to a certain extent. We expect food inflation to moderate going ahead as the base effect plays out and new harvests arrive in the market. For FY25, we expect inflation to average 4.8%. If food inflation moderates, we expect the RBI to cut the policy interest rate by a shallow 50 bps in two tranches in the second half of the fiscal year.” 

Above views are of the author and not of the website kindly read disclaimer