July 13, 2024
New Delhi, India
India’s consumer price inflation (CPI) in June 2024 rose to 5.08%, reversing the declining trend of previous months. This increase was driven by a significant surge in food prices, especially vegetables and pulses, amidst an uncertain economic environment. This article delves into the factors influencing the inflation rate and its implications for India’s economic policy.
Inflation Surge Driven by Food Prices
The CPI inflation rate edged up to 5.08% in June from 4.75% in May, driven by rising food prices. According to data from the Ministry of Statistics, vegetable prices surged by 29.32%, pulses by 16.07%, and cereals by 8.65% due to production challenges caused by a heat wave in northern states. In contrast, the price of cooking oil continued to decline, falling by 2.68% in June, and the inflation rate for spices slowed to 2.06% from 4.27% in May.
Comparison with Previous Months
The June inflation rate marks a break from the declining trend observed in the previous months, where inflation had eased to a 12-month low of 4.75% in May and 4.83% in April. The food inflation, which constitutes nearly half of the overall consumer price basket, rose to 9.36% in June, up from 8.69% in May, and significantly higher compared to 4.55% in June 2023.
RBI’s Stance on Interest Rates
Given the persistent inflationary pressure, the Reserve Bank of India (RBI) is unlikely to cut interest rates in the near term. RBI Governor Shaktikanta Das emphasized the need to control inflation to ensure stable economic growth. The RBI has maintained the repo rate at 6.5% for the eighth consecutive time, prioritizing inflation control over immediate rate cuts. Despite raising its GDP growth projection to 7.2% for 2024-25, the RBI has kept its retail inflation projection at 4.5%.
Industrial Production and Economic Outlook
India’s Industrial Production (IIP) growth also showed positive signs, rising to 5.9% in May from 5% in April. This growth indicates robust economic activity, although the RBI remains cautious due to the volatile global economic environment and persistent inflation close to 5%. Governor Das reiterated that it is too early to discuss rate cuts given the current economic uncertainties.
Conclusion
India’s retail inflation in June 2024 has increased to 5.08%, primarily due to rising food prices. The RBI remains cautious about cutting interest rates, focusing on controlling inflation to ensure long-term economic stability. As economic conditions continue to evolve, the central bank’s policies will be closely monitored for further developments.
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