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Retail inflation hits five-month high of 5% in June on costlier fuel, reduces possibility of RBI rate cut in August

New Delhi: Retail inflation spiked to a five-month high of 5 percent in June on costlier fuel, despite easing food prices, reducing possibilities of an interest rate cut by the Reserve Bank in its upcoming monetary policy review.

The retail inflation based on Consumer Price Index (CPI) stood at 4.87 percent in May. It was 1.46 percent in June 2017.

The earlier high was in January this year at 5.07 percent.

As per the data released by the Central Statistics Office (CSO), the inflation in the food basket was 2.91 percent, compared to 3.1 percent in May, due to slower rate of price rise articles such as fruits, vegetables and cereals.

The inflation in fuel and light category, however, went up to 7.14 percent as against 5.8 percent in May.

Representational image. Reuters.

Representational image. Reuters.

The CSO said the price data for CPI inflation were collected from selected towns by the Field Operations Division of NSSO (National Sample Survey Office) and from selected villages by the Department of Posts.

The data further showed that inflation in clothing and footwear category in June stood at 5.67 percent and in housing 8.45 percent, both marginally higher over the previous month.

The government has mandated the Reserve Bank to keep inflation at 4 percent (+/- 2 per cent).

The RBI Governor headed Monetary Policy Committee (MPC) will be meeting later this month to review interest rate regime.

RBI had raised its key short-term benchmark lending rate (repo) by 0.25 percent to 6.25 percent after its last MPC meet in June. The rate was raised after almost four-years on inflationary concerns.

The MPC will be meeting for three-days from 30 July and announce its decision on the third bi-monthly policy of the current fiscal on 1 August.

Commenting on the data, Yes Bank Chief Economist Shubhada Rao said, "June inflation number is the likely peak we have seen in this FY. Subsequent prints are expected to average below 4.5 percent".

The core inflation remains elevated that may keep RBI on guard, she added.

Economist with ratings firm Icra Aditi Nayar expects the MPC to increase the repo rate by another 25-50 percentage points in 2018-19, depending on the extent to which various inflationary and fiscal risks materialise.

Updated Date: Jul 12, 2018 19:45 PM

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