Inflation breaches RBI target as patchy monsoon adds fresh risks

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New Delhi: An erratic monsoon and rising food prices are emerging as fresh risks to India’s economy just as renewed tensions in West Asia threaten to push up crude oil prices and disrupt global supply chains.

Driven by rising food prices, consumer price index (CPI)-based retail inflation accelerated to 4.38% in June from 3.93% in May, breaching the Reserve Bank of India's (RBI) medium-term target of 4% for the first time since January 2025—and the first time since the new CPI series was introduced in January 2026.

The June inflation print also exceeded the 4.2% median estimate in a Mint poll of 18 economists. Economists expect inflation to remain elevated in July as well.

Alongside, the India Meteorological Department (IMD) has forecast uneven rainfall across the country over the coming week—subdued rains over northwest, central and southern India, and extremely heavy rainfall in parts of eastern and northeastern states.

The uneven rainfall comes at a critical stage, with July being the peak season for sowing of kharif crops. Much of the country’s crop-growing regions are likely to witness weaker monsoon activity, the IMD said.

Economists said the combination of patchy rainfall in key agricultural belts and flooding in eastern India could further tighten food supplies in the coming months, adding to inflationary pressures.

Food inflation rose to 5.32% in June from 4.78% in May, driven by higher cereal and vegetable prices. Tomatoes, ginger and raisins were among items that recorded the sharpest price increases, while precious metals such as gold, silver and platinum also remained inflationary.

Elevated inflation is likely to erode household purchasing power, particularly in rural areas where incomes remain heavily dependent on agriculture. That could weigh on consumption, which has been the principal driver of India’s post-pandemic growth.

Any sustained rise in crude oil prices due to geopolitical tensions in West Asia could further add to imported inflation and increase input costs across sectors, economists said.

According to Sujan Hajra, chief economist and executive director at Anand Rathi Group, the June uptick in inflation was primarily driven by higher food and fuel prices (on the back of higher global crude oil prices). “Looking ahead, food inflation remains vulnerable to weather-related risks, including the possibility of El Niño affecting agricultural output,” he said.

Shweta Saini, an agricultural economist and founder and CEO of Arcus Policy Research, said a persistent rainfall deficit may tighten supplies and raise prices of several rain-dependent crops, including horticulture produce, edible oil crops, sugarcane and soybean.

“Prolonged moisture stress during critical sowing and crop-growth stages may reduce yields, leading to firmer prices and increasing concerns over food inflation in the months ahead,” Saini added.

“With El Niño conditions prevailing, we expect a significant decline in both acreage and crop yields in regions that lack irrigation facilities,” said Sarwan Singh Pandher, a farm leader and coordinator of the All India Kisan Mazdoor Morcha, which has more than 1 million farmer members.

The risks come at a time when India’s growth outlook has moderated. The RBI has projected GDP growth of 6.6% for this fiscal, lower than its earlier estimate, while the World Bank and the Asian Development Bank have also lowered their forecasts to the same level. GDP growth stood at 7.7% in the previous fiscal year.

However, the combination of slowing growth and rising inflation is unlikely to prompt an immediate monetary policy response from the RBI, economists said.

Icra chief economist Aditi Nayar said the RBI’s monetary policy committee is expected to maintain the status quo at its August meeting, with any policy tightening, if required, likely to be deferred until later in the fiscal year.

According to Nayar, CPI ...