Retail Inflation Likely To Rise In June As Prices Of Perishables Inch Up

Retail inflation is expected to inch upwards in June, led by higher prices of perishables amid a heatwave and lower market arrivals.

A panel of economists polled by Bloomberg estimated Consumer Price Index-based inflation at 4.8% in June, compared to 4.75% in May.

Inflation remains within the Reserve Bank of India's tolerance band of 4 (+/-2)% since September last year, but is expected to see an uptick after seeing a consistent decline this year.

“A delayed start to the southwest monsoon and prolonged heatwave are likely to have pushed June inflation to 5% year-on-year, higher than the trend anticipated earlier in the month," said Radhika Rao, senior economist at DBS Bank. As June progressed, vegetable prices began to rise sharply, alongside pressure from a telecom tariff price hike and a moderate rise in kharif (crop season) minimum support prices, she explained.

The latest prices of key vegetables continue to rise on an annual and sequential basis. Potatoes are currently retailing at Rs 36 a kg across India on average, while onions and tomatoes are selling at Rs 44 and Rs 64, respectively, according to daily data from the Department of Consumer Affairs. While potatoes and onions are costlier by over 50% from over a year ago, tomatoes, which are trending lower on an annual basis, cost about 70% higher over last month.

For June, food and beverage price momentum is likely to increase 2.4% month-on-month and by 8% year-on-year, according to estimates by Kaushik Das, chief economist at Deutsche Bank. This compares with a rise of 0.7% month-on-month in May and 7.9% year-on-year. Das, too, expects higher food and beverage prices to push June CPI inflation closer to 5%.

Prices of these commodities have seen a significant uptick and that's expected to keep food inflation elevated in the near term, said Madan Sabnavis, chief economist at Bank of Baroda. Depending on the crop in question and the south-west monsoon trajectory, prices are likely to rise further until September, when fresh arrivals will hit markets, he said.

Heavy monsoons also generally tend to push up prices in July and August, said Teresa John, economist at Nirmal Bang Institutional Equities.

However, expectations of above-normal rainfall in July can help partly ease price pressures. With the monsoon regaining momentum in July, vegetable prices are expected to moderate, benefiting from the crop’s short growth cycle, said Rao of DBS Bank. Base effects will also push July-August inflation to sub-4%, allaying concerns, she added.