Inflation eases in June

Wholesale inflation at 4-month low; retail inflation down to lowest; but observers don't expect RBI to cut rates in August review, given the rain situation and other uncertainties

Consumer Price Index (CPI)-based inflation fell to 7.31 per cent in June, the lowest since its launch in January 2012. Its wholesale counterpart declined to a four-month low of 5.43 per cent in the month.

Even so, experts felt the Reserve Bank of India was likely to keep rates as they are in its policy review next month, given the fear of a sub-normal monsoon and geopolitical uncertainty.

In May, the CPI inflation was 8.28 per cent and that based on the wholesale price index (WPI) at 6.01 per cent.

June's figure for CPI inflation is below the eight per cent target set by the Urjit Patel committee for January 2015, though it may vary in months to come.

In June, the retail price inflation was lower in both urban parts and villages compared to May. While it dipped to 6.82 per cent from 7.55 per cent in urban areas, villages saw it moving down to 7.72 per cent from 8.86 per cent over this period.

Food inflation, for which the government is drawing flak from many quarters, came down to 7.97 per cent in June from 9.56 per cent in May.

However, much of the effect was seen to be coming from the base of high inflation in the same month last year. For instance, overall inflation in terms of CPI had stood at 9.87 per cent in June 2013. Similarly, food inflation was 11.93 per cent. High inflation last year meant the index showed relatively less inflation for the same month this year, as the numbers are calculated year-on-year.

Going forward, a subnormal monsoon and its effect on sowing might affect prices. "Notwithstanding the moderation in CPI inflation, caution is warranted on account of the shortfall in precipitation and sowing thus far in the kharif season, which could keep food inflation and inflationary expectations at elevated levels," said ICRA senior economist Aditi Nayar.

She said an improvement in demand conditions could also prevent a sustained easing of inflationary pressures.

"Such factors have diminished the likelihood of monetary easing in the remainder of 2014," Nayar said.

The WPI inflation moved down as as the rate of food price rise declined and onions turned cheaper. Food inflation dipped to 8.14 per cent against 9.50 per cent over the period. Data showed onion prices fell 10.7 per cent against a dip of 2.83 per cent a month before. These prices are calculated, as mentioned earlier, year-on-year.

At this point of time, onion prices had spiked last year, too. In June last year, inflation in onions was 115 per cent. Given that base, the price index showed a fall in June this year. Month-on-month, onion prices rose 16.05 per cent in June.

Elsewhere among vegetables, inflation in potatoes rose 42.52 per cent for June against 31.44 per cent in May.

While prices of cereals rose at a lesser rate in June (5.33 per cent) against May (7.67 per cent), fruit prices rose 21.4 per cent against 19.4 per cent, and milk by 10.82 per cent against 9.57 per cent.

Fuel and power segment saw inflation declining to 9.04 per cent against 10.53 per cent. CARE Ratings also advised caution in interpreting the data, "given the risk to food prices on account of the prevailing weak monsoons".