CPI Preview: Economists forecast retail inflation to rise to 5.1% in June 2024 due to higher vegetable prices

Economists say retail inflation for June 2024, as measured by the consumer price index (CPI), is expected to rise to 5.1 per cent in June 2024 due to higher vegetable prices.

This is compared to a one-year low of 4.75 percent recorded in May 2024 and 4.83 percent recorded in April 2024.

Retail inflation data for June 2024 will be released by the National Statistical Office (NSO) on Friday.

Economists said food inflation for June is expected to remain high at around 8.5-8.7 per cent for June 2024. In May 2024, food inflation stood at 8.69 per cent, marginally lower than 8.7 per cent in the previous month.

With expected CPI inflation of 5-5.1 per cent, much higher than the RBI’s target of 4 per cent, most economists do not expect the central bank’s Monetary Policy Committee (MPC) to cut any rates in its August 2024 review meeting.

On Thursday, RBI Governor Shaktikanta Das also said it is premature to talk about a repo rate cut, especially when surveys indicate that the June 2024 CPI print is likely to be around 5 per cent.

Under the inflation targeting framework adopted by India, the government has tasked the RBI to ensure that CPI inflation remains at 4 per cent with a margin of 2 per cent on either side.

The RBI recently projected CPI inflation for 2024-25 at 4.5 per cent, up from 4.9 per cent in Q1, 3.8 per cent in Q2, 4.6 per cent in Q3 and 4.5 per cent in Q4.

opinion of economists

Chief Economist and Head-Research and Outreach Aditi Nair said higher vegetable prices amid a prolonged heat wave and uneven progress of monsoon across the country have contributed to the CPI inflation rising to 5.1 per cent in June 2024.

“This will be followed by a transient, base-effect decline in inflation in July 2024, followed by normalization in the remaining quarter,” he said.

Madan Sabnavis, Chief Economist, Bank of Baroda, said he expects CPI inflation for June 2024 to be around 4.9 per cent, primarily due to food inflation remaining high. “In particular, the combination of pulses (especially arhar) other than potatoes, tomatoes and onions is a matter of concern.

“Food inflation will remain in the 8 per cent range and our CPI inflation will remain around 4.9 per cent,” he said.

Sabnavis said that he does not expect a cut in the repo rate in the August meeting of the MPC.

Radhika Rao, executive director and senior economist, DBS Bank, said: “The late onset of the southwest monsoon and the prolonged heatwave have pushed inflation up to 5 per cent year-on-year in June, which was higher than earlier. This is higher than the expected trend.” month”.

He said that as June passed, vegetable prices started rising rapidly due to pressure from telecom tariff price hike and a marginal increase in Kharif MSP.

At this time, with rains picking up again in July, vegetable prices are expected to moderate, taking advantage of the crop’s short growth cycle. Base effect will also push inflation below 4 per cent in July-August, reducing concerns.

“Nevertheless, the RBI has already indicated that they will look at base effect-driven fluctuations in the readings, rather than focusing on sticky food pressures. We expect the rates to remain the same this year”, Rao said.