CPI inflation remains higher than all India average in 12 of 22 states in June

Even as retail inflation as captured by the consumer price index averaged 5.08% in June, as many as 12 of the 22 states and union territories reviewed witnessed a much higher level of price rise.

As per official data released on Friday, states including Andhra Pradesh, Assam, Bihar, Odisha, Haryana, Karnataka, Telangana registered much higher inflation rates at over 5.08%. Of these, CPI inflation in Odisha was at the highest level across the country at 7.22% in June 2024 followed by Bihar, which registered retail inflation at 6.37%, Karnataka at 5.98%, Andhra Pradesh at 5.87% and Rajasthan at 5.83%.

Delhi had the lowest inflation at 2.18% in June followed by Uttarakhand that recorded 2.89% inflation in the month.

Meanwhile, rural India recorded a higher inflation rate at 5.66% last month, compared to urban areas, where the inflation rate was 4.39%.

June’s spurt in CPI inflation was attributed largely to rising food inflation, that of vegetables. The consumer food price index-based inflation was at 9.36% in June compared to 8.69% in May. Inflation in the food and beverage basket was also up at 8.36% last month with retail inflation in vegetables at 29.32%.

Analysts expect retail inflation to ease in coming months due to the base effect as well as better kharif sowing. “ICRA estimates the headline CPI inflation to soften to 2.5-3% in July 2024 entirely on account of the favourable base effect (+7.4% in July 2023), which will partly absorb the impact of the sequential surge in prices of vegetables,” said Aditi Nayar, Chief Economist and head of Research and Outreach but cautioned that a sustained spell of heavy rainfall can further push up perishable prices, which imbues caution into the near-term outlook.

However, the Reserve Bank of India is likely to desist from a rate cut in its August policy review, especially as factory output growth in May was the fastest in seven months. The index for industrial production expanded by 5.9% in May compared to 5% in April this year and 5.7% in May last year.

“The IIP growth is on a stable path which bodes well for the economy. The post-harvest festival season will hold clue to revival of demand, especially rural,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

He further noted that there has been some encouraging news on the consumer goods front with durable witnessing growth of 12.3%. “This can be attributed to both base effect as well as spending post rabi season. FMCG goods however have seen moderate increase in production,” he said.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank noted that the central bank will be in no hurry to ease monetary policy given the headroom from robust growth in the backdrop of near-term inflation risks.

“We maintain our expectation of no rate cuts this calendar year, despite an improved case for cuts in the US. Stronger IIP numbers further support the argument that the RBI can keep rates elevated while growth remains strong,” said Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers.