India's consumer inflation likely rose above RBI's 4% target in June: Poll

India's consumer inflation likely breached the central bank's medium-term target of 4 per cent in June for the first time in 16 months, according to ​a Reuters poll, as higher food and fuel prices, the US-Iran ​war and a weak monsoon added to cost pressures.

Consumer inflation, measured by the annual ‌change in the consumer price index (CPI), is expected to have quickened to 4.3 per cent in June from 3.93 per cent in May, 37 economists forecast in the poll conducted July 3-9.

Estimates for the data, due to be released on July 13, ranged from 3.65 per cent to 5.50 per cent.

 

This would also be the highest inflation reading since India introduced its revised consumer price index series with a new base year and updated consumption basket in January.

"The expected increase is less a reflection of broad-based inflationary pressures and more a consequence of a gradual firming in food, fuel and select services categories over recent months," noted Kunal Kundu, India economist at Societe Generale.

"At ‌the same time, despite a growing divergence between wholesale and consumer prices following the sharp increase in global commodity and energy costs, the transmission from producer prices to retail inflation is likely to remain partial and delayed."

Food price pressures could build further if El Nino, a weather pattern typically associated with weaker monsoon rains in India, disrupts crop production during the June-September season.

Retail fuel prices also remained elevated after state-owned fuel retailers raised prices four times in May, increasing ​transportation and logistics costs.

With fears that renewed US-Iran hostilities could once again send oil prices spiking, some ‌economists said the risks to the inflation outlook remained to the upside.

RBI held its key interest rate unchanged at 5.25 per cent last month, in line with expectations. However, a majority of ​respondents in ‌a survey conducted before the meeting had expected at least one increase by year-end.

The latest Reuters survey ‌showed wholesale price inflation likely eased only marginally to 9.15 per cent in June from 9.68 per cent in May. Wholesale inflation, which assigns a much larger weight to fuel products than the consumer ‌price ​index, has remained ​elevated despite headline consumer inflation coming in below expectations in May.

Core inflation, which excludes volatile food and fuel prices, was expected to be at 3.95 per cent in June. India ‌does not publish official ​core inflation data.