India's Inflation Rises in June Amid Surging Vegetable Prices, Reuters Poll Shows

According to a Reuters poll, India's consumer price inflation likely rose in June, reversing five months of declines. The increase was driven by a surge in vegetable prices caused by extreme weather disrupting agricultural production in northern states. Inflation is estimated at 4.80%, up from 4.75% in May.

India's Inflation Rises in June Due to Surging Vegetable Prices, Says Reuters Poll

According to a Reuters poll of economists, India's consumer price inflation likely increased in June, reversing five months of declines. This increase was primarily due to a surge in vegetable prices caused by the harm to crops caused by extreme weather.

Due to extreme heat and severe floods disrupting agricultural production in India's northern states, the prices of tomatoes, onions, and potatoes, essential ingredients in every Indian kitchen, increased by double digits last month

According to a Reuters poll conducted from July 5-9, consumer price inflation increased to 4.80% last month compared to 4.75% in May over the previous year. Food comprises approximately half of the total basket of goods and services.

Forecasts for the data, due at 1200 GMT on July 12, varied from 4.10% to 5.19%.

"A sharp spike in vegetable prices along with cereals and pulses kept food inflation at higher levels and nullified the softness in eggs, fruits, and spices prices," said Kanika Pasricha, chief economic advisor at Union Bank of India.

"Core inflation likely stayed flat at all-time lows of 3.10% as gold prices eased somewhat during the month and commodity prices also remained under pressure."

The median estimate from a smaller sample of 19 economists predicted core inflation to be 3.10% in June. Core inflation is considered a more accurate indicator of domestic demand because it excludes volatile items such as food and energy.

The Indian statistics agency does not publish core inflation data; however, economists estimate the figure using consumer price index (CPI) data. Some may publish their updated estimates following the release on Friday (July 5).

Telecom Tariff Hikes Expected to Raise India's Inflation, Despite Low Domestic Demand, Economists Say

According to numerous economists (via Business Standard), the recent decrease in core inflation indicates a general lack of domestic demand in an economy where private consumption comprises nearly 60% of GDP despite the economy expanding by over 8% during the previous fiscal year.

Additionally, some predicted that implementing a telecommunications tariff increase this month would increase inflation in the months ahead, thereby preventing a further decline in core CPI.

"Given the weight in the CPI basket (for telecoms) and past translation trends, this should push up headline CPI by another 20 bps or so, starting July," said Sajjid Chinoy, chief India economist at J.P. Morgan.

"To the extent that this is a one-off price hike, the RBI should look through this. But again, it adds to the uncertainty of the inflation outlook."

The Reserve Bank of India is anticipated to reduce rates only once this year, in the coming quarter, as inflation is expected to remain above its medium-term target of 4% for the current fiscal year and the following.

Economists anticipate the U.S. Federal Reserve will initiate its easing cycle in September.

The survey indicated that wholesale price index-based inflation presumably increased from 2.61% in May to an annual rate of 3.50% last month.

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