India's retail inflation breaches RBI’s midpoint target, rises to 4.38% in June

India’s retail inflation accelerated to 4.38% in June, above the Reserve Bank of India’s 4% midpoint target for the first time since January 2025, according to provisional data released by the ministry of statistics and programme implementation on Monday.

The median estimate in a Mint poll of 18 economists had forecast retail inflation at 4.2% in June.

The latest Consumer Price Index (CPI) data can't be compared with the year-ago period because the index was reset in January. Retail inflation was recorded at a revised 2.74% in January, marking the debut of the new series with 2024 as the base year. Prices rose by 3.21% in February, 3.4% in March, 3.48% in April and 3.93% in May.

Although inflation remains within the RBI’s tolerance range of 2% to 6%, a further rise in prices may push the central bank to increase policy rates, which could suppress growth in the coming quarters. In June, the RBI revised its inflation projection upwards to 5.1% (from 4.6% earlier), citing twin risks arising from an expected below-normal monsoon amid El Niño conditions and elevated energy prices.

Inflation under the old CPI series, with 2012 as the base year, was 1.33% in December and 0.71% in November.

The conflict in West Asia has weighed on India’s economy, prompting a slump in the currency and raising stagflation risks. However, gross domestic product (GDP) growth in Q4 remained firm at 7.8%, taking the FY26 growth rate to 7.7%.

India’s growth is expected to moderate in the current fiscal. According to the RBI, GDP growth in FY27 is expected to moderate to 6.6% (from 6.9% estimated in April), a view shared by the World Bank, which also pegged India’s GDP growth at 6.6% this fiscal year. The Asian Development Bank, which projected India’s growth at 6.9% this fiscal year in April, has downgraded the forecast to 6.6% for FY27.

The new inflation index is built on spending patterns captured in the 2023-24 Household Consumption Expenditure Survey. The recalibrated weights for index components have pushed up India’s headline inflation readings modestly, with the share of core items rising about 10 percentage points and volatile food prices getting a smaller say.

The new CPI series increases the share of housing, reshaping inflation measurement, easing volatility and altering how the RBI interprets headline inflation trends.

Policymakers now have a more up-to-date basis for assessing real incomes, consumption trends and purchasing power.

The RBI kept interest rates unchanged at its meeting on 5 June, striking a cautious tone as it monitored the impact of surging oil prices on the economy and pledges to curb excessive currency moves.

The central bank’s six-member Monetary Policy Committee voted unanimously to keep the benchmark repo rate at 5.25% and retain a neutral policy stand, indicating that it is in a wait-and-watch mode.

Subhash is the infrastructure editor at Mint and tracks the momentous developments taking place in the space that is fast changing the Indian landscape. He finds reporting to be a passion that provides the necessary adrenaline rush and keeps you going.

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