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Below the Quote on CPI by Aditi Nayar, Chief Economist, ICRA Ltd

"The CPI inflation in June 2026, the first full month after the hikes in petrol and diesel prices, accelerated to 4.4%, slightly higher than our forecast of 4.3%, led by the food and beverages, transport, and restaurants divisions.

Inflation in food and beverages crossed the 5% mark for the first time in the new CPI series in June 2026, amidst the steep rainfall deficit of 40%. Retail food prices have continued to harden sequentially in July 2026, reflecting the typical seasonal trends. Additionally, most food items witnessed an uptick in their YoY inflation readings in July 2026 compared to June 2026, suggesting that the YoY inflation in the F&B segment is set to inch up further in July 2026 from 5.1% in June 2026. In addition to food items, the non-food component may also exert pressure on the headline CPI print in the month, partly owing to the passthrough of higher fuel prices into prices of other items. Overall, ICRA expects the YoY CPI inflation to harden to ~4.6% in July 2026 from 4.4% in June 2026.

The rainfall deficit for the SW monsoon season has narrowed by July 12, 2026, owing to surplus rains in the early part of the ongoing month. This augurs well for kharif sowing trends, and we expect it to pick up during the current lull in the monsoon rains. India typically receives ~32% of its entire season rainfall in the month of July, followed by 29% in August. Further, ~55% of the total area sown in the kharif season, is typically covered in July, with this proportion being much higher for crops such as pulses (65%), oilseeds (66%) and coarse cereals (62%). Consequently, adequate rainfall during July-August remains crucial to support sowing and output and contain inflationary pressures in the ongoing fiscal. 

ICRA expects the MPC to maintain status quo on the policy rate in its upcoming meeting in August 2026. While the material easing in crude oil prices has reduced the likelihood of an early rate hike, the renewal of tensions in West Asia warrants some caution. Additionally, more clarity is needed on the monsoon turnout, which would only be available later during the monsoon season. Consequently, any rate hike(s) is likely to be back ended in the fiscal."

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