The Reserve Bank of India (RBI) may revisit its ‘withdrawal of accommodation’ policy stance in September following a drop in US inflation and domestic inflation localised to a few items, said SBI’s research unit.
“With US inflation having declined by 0.1% from May, putting the 12-month rate at 3%, around its lowest level in more than three years is creating grounds for Fed rate cut rate by September. We, therefore, feel RBI will revisit the policy stance round that time in line with our expectation,” it said in Ecowrap.
The upward trajectory of the CPI in June was majorly decided by components in the food items. The primary driver was vegetables which registered a growth of 29.32%. This was followed by pluses with 16.07%. Climatic factors have played a major role in veg-protein based item prices recently. Although there is no secular inflation build-up in protein item. The inflation in cereal is third major contributor to inflation in June registering inflation of 8.75%. Lastly the prices of services, namely the personal care and effects contributed the rest.
Domestic inflation key
The trajectory of inflation will be determined by domestic inflation. CPI inflation is expected to remain below or close to 5.0% in the remaining months, except for Sep’24. For the whole FY25, CPI inflation is likely to average to 4.6%-4.7%. With monsoon progressing satisfactorily, with overall seasonal variation balancing out (a marginal deficit of –5% in Central India), we do not expect any significant deviation in the inflation outlook, SBI Research said.
India’s retail inflation increased to 5.08% in June 2024, compared to 4.80% in May, owing to higher food and beverage inflation. Core CPI increased to 3.13% compared to 3.07% in May. Both rural and urban inflation increased in June. While, rural inflation increased to 5.66%, urban inflation rose to 4.39% in June.
Most of the sub-components except the above registered growth below the average CPI indicating that inflation uptick was largely localised to a few items.
Spatially inflation showed considerable variability. Among the 22 States, 12 states had inflation above India’s inflation of 5.1% in June. Odisha clocked the highest inflation rate of 7.22% in June, followed by Bihar at 6.37% and Karnataka at 5.98%.
From the supply side, IIP rose to a seven-month high of 5.9% in May from the downward revised figure of 5.4% in April. Mining grew by 5.9%, Manufacturing grew by 4.6% and Electricity grew by 13.7%
