Retail inflation edges up to 22-month high of 5.77%

Urban, rural areas show contrasting picture

The consumer price index (CPI)-based inflation inched up to a 22-month high of 5.77 per cent in June from 5.76 per cent in the previous month, but the picture in urban and rural areas were quite different. Vegetable prices rose at a faster rate in both urban and rural areas in this period.

Inflation had stood at 5.40 per cent in June 2015.

Urban parts witnessed a rise in inflation to 5.26 per cent in June from 4.89 per cent in the previous month, but it declined to 6.20 per cent from 6.45 per cent in rural areas. Nonetheless, inflation remained elevated in rural parts as well despite decline in June, which might prompt Reserve Bank of India (RBI) to maintain a status quo in the policy rate in August. However, subsequently, RBI might ease the rate if global situation affects economic growth in India.

"On the monetary front, we are unlikely to see any change. However, there could be some easing in the coming months if the global situation deteriorates as a consequence of the UK moving out of the European Union," said Richa Gupta, senior economist, Deloitte.

RBI has targeted inflation to soften to five per cent by the end of the current financial year. Meanwhile, the target of keeping inflation at four per cent-plus, minus two percentage points, set in the monetary policy framework, is also being reviewed by the government and RBI.

CPI inflation is mainly driven by food parts since they constitute 45 per cent of the overall index. The food inflation also came down from 7.67 per cent to 7.61 per cent in villages, but rose to 8.16 per cent from 7.24 per cent in urban areas.

Disruption in transport facilities due to rains raised food inflation in urban areas, experts said.

Pulses, which is seen as a main villain in food prices, saw a fall in inflation, both in rural and urban areas. Overall, inflation in pulses declined to 26.86 per cent in June from 31.57 per cent in the previous month. It fell from 33.63 per cent in May to 28.28 per cent in June in rural areas, while the urban areas saw a decline from 28.19 per cent to 24.51 per cent.

In contrast, the rate of rise in prices of vegetables increased in both rural and urban areas. Overall, inflation in vegetables fell to 14.74 per cent in June from 10.77 per cent in May. Urban areas saw inflation in vegetables rise to 18.40 per cent from 11.65 per cent, while villages witnessed an increase to 12.72 per cent from 10.27 per cent.

Vegetable inflation is expected to come down after fresh items hit markets in August.

Inflation in sugar, which had earlier been witnessing a decline due to a glut, moved up to 16.79 per cent in June from 13.96 per cent. Elsewhere, inflation remained subdued in food items.

The rate of price rise in fuel and light inched down to 2.92 per cent from 2.94 per cent in this period.

Inflation in household goods and services, which include transport and communication, recreation and amusement, education, and personal care also declined slightly to 4.38 per cent in June from 4.83 per cent in the previous month.