Higher food prices stoke retail inflation in June

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SME Times News Bureau | 14 Jul, 2015
Rise in food and fuel prices propelled India's retail inflation to 5.40 percent in June from 5.01 percent in May, official data showed on Monday.

The data furnished by the Central Statistics Office (CSO) showed that the retail, or the consumer price index (CPI) inflation, in the corresponding month of 2014 stood at 6.77 percent.

According to the CSO data, the CPI-urban for June inched higher to 4.55 percent from 4.41 percent in May. The June CPI-rural, meanwhile, jumped to 6.07 percent from 5.52 percent in May.

The main cause for the rise in June inflation was attributed to costlier food items.

The "Food and beverages" sub-indice in the CPI has the highest weightage of about 45.86. It rose to 5.48 percent from 4.80 percent in May.

However, food inflation during June 2015 was lower in comparison to the corresponding month of 2014, when it stood at 7.21 percent.

The food inflation in the urban areas touched 5.24 percent from 4.48 percent in May. The food inflation burden for the rural households in June rose to 5.61 percent from 4.74 percent in May.

The food inflation in rural and urban areas during the corresponding month of 2014 stood at 8.05 percent and 5.62 percent, respectively.

Prices of protein based food items like pulses, milk, egg, meat and fish accelerated. Pulses became costlier by 22.24 percent on an year-on-year (YoY) basis.

Milk and milk based products became dearer by 7.18 percent. Prices of meat and fish appreciated by 6.99 percent. Eggs cost rose by 5.09 percent.

Spices became expensive by 9.71 percent. Vegetables' prices were up by 5.37 percent.

However, sugar and confectionery costs came down by 8.55 percent in the month under review on a YoY basis.

Fuel and light products which constitutes 6.84 percent of the CPI grew by 5.92 percent in June.

The uptick in the CPI will be a major concern for the Indian industry, as it belies the hope of a future rate cut by the Reserve Bank of India (RBI).

The recent slowdown in the factory output, revealed by the Index of Industrial Production (IIP) data released on Friday and good progress of monsoon, had renewed hopes of India Inc. for another rate cut from RBI during its monetary policy review in August.

"CPI breaching the 6 percent comfort level in rural India is a concern. Uptick in retail prices in urban and rural regions in June has shrunk RBI's window for cutting rates further," said Debopam Chaudhuri, chief economist, ZyFin Research.

A retarded growth in manufacturing output slowed India's overall industrial production expansion to 2.7 percent for May -- against 4.1 percent in April.

The RBI had lowered its short-term lending rate by 25 basis points in its monetary policy review in June.

That time RBI Governor Raghuram Rajan said the central bank's next move will be data-dependent. It will also keep an eye on how monsoon progresses and the steps taken by the government to mitigate its negative effects, Rajan had added.