Retail inflation marginally down to 6.26% in June, above RBI’s satisfactory level for the second consecutive month

Retail inflation came down marginally to 6.26 percent in June. However, it is more than the satisfactory level of the Reserve Bank of India for the second consecutive month. Consumer Price Index (CPI) based inflation stood at 6.3 percent in May 2021 and 6.23 percent in June 2020. According to the data of the National Statistical Office (NSO), the retail inflation rate has come down slightly despite food inflation rising to 5.15 percent in June. The inflation rate of food articles has increased mainly due to an increase in the prices of edible oils and fats. It was 5.01 percent a month ago in May.

Inflation in the oil and fat segment on an annual basis stood at 34.78 percent in June. At the same time, the inflation rate of fruits was recorded at 11.82 percent. However, the prices of vegetables declined by 0.7 percent year on year. Inflation in the fuel and light segment stood at 12.68 percent. The government has given the responsibility to the Reserve Bank of India to keep retail inflation at 4 percent with a variation of 2 percent. The central bank mainly takes into account the retail inflation rate while considering the bi-monthly monetary policy review.

Prices expected to remain at current levels

Suresh Nagpal, chairman of the Central Organization for Oil Industries and Trade (COOIT), the apex body of edible oil, said that the price of edible oil has started relaxing in the international market from the second fortnight of June. “The Indian government has also reduced the duty and lifted the ban on import of some edible oils for the next few months,” he said. As a result, prices of edible oils have decreased in both wholesale and retail markets since mid-June. We expect the prices to remain at the current level in the next few months.

Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank, said the fall in inflation in June is more than expected after being more than surprising in May. He added that overall inflation remains high and risks remain. Key mandi figures indicate a further relaxation in food prices in July. Due to this, inflation is likely to come down below 6 percent in the coming times. “We anticipate that the Monetary Policy Committee will continue with the current policy stance in the August Monetary Policy Review to spur economic growth,” Bhardwaj said. However, by the end of the year, the monetary policy will gradually start normalizing.

Nish Bhatt, founder, and CEO of consultancy firm Millwood Kane International said that this latest inflation figure is better than all estimates. He said that the retail inflation rate is above 6 percent but it will not affect the policy stance of the Reserve Bank and as it has said earlier, its stance will remain focused on economic growth. Madhavi Arora, Chief Economist, Emkay Global Financial Services, said that the June data is a positive surprise and the situation is likely to be better in terms of inflation projections in the times to come.

Retail inflation in rural and urban areas stood at 6.16 percent and 6.37 percent, respectively, in June. The NSO collected price data from 1,114 urban markets, 1,181 rural areas across all states and union territories. These data were collected by the employees of the Field Operations Division of NSO personally visiting the area.