Retail Inflation in India Expected to Stay Below 5% Except for September: SBI Research

SBI Research suggests India's retail inflation, measured by CPI, will largely remain under 5% in the remaining months of 2024-25, except September. Rising food prices caused a June spike to 5.08%. Despite easing inflation in other sectors, food prices pose a significant challenge for policymakers.

Retail inflation in India, as measured by the Consumer Price Index (CPI), is projected to stay below or close to 5.0 percent for most of the remaining months in 2024-25, except for September, according to a report from SBI Research. The uptick in June's inflation rate, propelled by soaring food prices, disrupted the moderation trend of preceding months.

June 2024 witnessed a provisional year-on-year CPI inflation rate of 5.08 percent. In rural and urban areas, the rates were 5.66 percent and 4.39 percent, respectively. Twelve states surpassed the national inflation rate of 5.1 percent, with Odisha recording the highest at 7.22 percent, followed by Bihar at 6.37 percent and Karnataka at 5.98 percent.

'With the monsoon progressing satisfactorily and seasonal variations balancing out, we do not foresee a significant deviation in the inflation outlook,' noted Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI. Additionally, with US inflation dipping to its lowest point in over three years at 3 percent, there are potential indicators for a Fed rate cut by September, the report highlighted.

'We anticipate the RBI will revisit its policy stance around that time,' the report added. Despite the easing of overall inflation, food prices have surged, nearly doubling year-on-year in June to 8.36 percent from 4.63 percent in the previous year. Govt data revealed a month-on-month rise in food prices across various segments.

Retail inflation for May was at a 12-month low of 4.75 percent, slightly lower than April's 4.83 percent. While retail inflation remained within the RBI's 2-6 percent comfort range, it stood above the ideal target of 4 percent. India's inflation management appears robust compared to other economies, even as global inflation pressures persist.

Despite a pause in rate hikes, the RBI has raised the repo rate by 250 basis points since May 2022 to curb inflation. The repo rate, the interest rate at which the RBI lends to banks, remains unchanged as the RBI prepares for its next monetary policy meeting in early August. Rising food prices continue to challenge the reduction of inflation to the targeted 4 percent level.

(With inputs from agencies.)