Food on boil, inflation rises to 4-month high of 5.08% in June; May factory output highest since October

India’s June retail inflation rose to a four-month high of 5.08%, faster than expected, from 4.8% in May, with food inflation flaring up to a six-month high of 9.36%, data released Friday showed. Inflation, as measured by Consumer Price Index (CPI), was 4.87% in June and food inflation was 4.55% in the year earlier. An ET poll last week had pegged retail inflation at 4.7%. The simultaneously released Index of Industrial Production (IIP) showed factory output grew at a seven-month high of 5.9% in May, according to data from the ministry of statistics.

Near-term Rate Action Unlikely

Industrial production grew 5% in April 2024 and 5.7% in May last year. “A weak start to the southwest monsoon in June and prolonged heatwave impacted vegetable prices, in turn pushing food and beverages inflation back above 8%,” said Radhika Rao, senior economist, DBS Bank. Food and beverage inflation saw an 8.36% jump last month, while that in fuel declined 3.66%. Vegetable inflation rose 29.32% and that in pulses was 16.07%. Food inflation in May was 8.69%. The RBI is expected to keep rates on hold until the second half of the year till there is clarity on food inflation risks. The central bank has forecast retail inflation at 4.5% for the year. Economists ruled out any near-term rate action. “Last year’s high growth print, combined with the inflation of 4.9% in Q1 FY25 are unlikely to shift the voting pattern of the four members who voted for a status quo in the June meeting towards a change in stance or rate cut in the August meeting itself,” said Aditi Nayar, chief economist at ICRA. Core inflation — excluding food and beverages, fuel and light, and petrol and diesel —inched up marginally to 3.35% in June from 3.28% in May.

Rural inflation at 5.66% was higher than urban inflation of 4.39% even as food inflation was higher in urban areas. RBI governor Shaktikanta Das underlined concerns over inflation on Thursday, pointing out in a TV interview that it has trended above the central bank’s target. “CPI headline inflation continues to be close to 5%, and I think it is too early to talk about an interest rate cut,” he had said. “We are quite a distance away from the 4% target.” The RBI is mandated to keep retail inflation at 4%, with a 2 percentage point tolerance band on either side of that. The next monetary policy committee (MPC) meeting is on August 6-8.

Industrial Growth:
Buoyed by electricity generation, overall industrial output rose 5.9% in May. Electricity and mining grew 13.7% and 6.6%, respectively, pushing industrial growth to the highest since October 2023. Manufacturing, the largest component of IIP, grew 4.6% in May from 3.9% in April and 6.3% a year ago.