Retail inflation likely to have breached 4% mark in June

Driven by surging food costs and the domestic pass-through of global fuel hikes, retail inflation is projected to breach the crucial 4 per cent mark in June after a 16-month hiatus. Despite the spike, the Reserve Bank’s Monetary Policy Committee (MPC) is expected to hold policy rates steady during its upcoming review on August 3–5.

Under the new 2024 base series, Consumer Price Index (CPI) inflation has climbed steadily from 2.74 per cent in January 2026 to 3.93 per cent in May, surging 45 basis points sequentially in the last month alone. Core inflation similarly touched 3.9 per cent in May. Warning of persistent headwinds, the Finance Ministry's latest Monthly Economic Review noted that the ongoing West Asia crisis and subsequent global shocks are keeping domestic inflationary pressures on an upward trajectory as energy costs diffuse through the economy.

Further, it said that while easing oil prices and improving global supply-chain conditions may help alleviate some external pressures, uncertainties surrounding the monsoon and geopolitical developments in West Asia continue to pose downside risks to growth and upside risks to the inflation outlook.

MPC has projected retail inflation for April-June quarter at 4.2 per cent.

According to Jahnavi Prabhakar, Economist at Bank of Baroda, BoB Essential Commodities Index (BoB ECI) has risen at its sharpest pace since March 25 by 2.4 per cent in June 26, on y-o-y basis. In Jul’26, the build-up is even higher (first 6-days) at 2.9 per cent. International food prices continue to remain elevated. Given the recent developments around pick up in Southwest monsoon, kharif acreage and reservoir level, a careful monitoring is needed of the spatial distribution of rainfall as well as of El Nino conditions in the coming days. The overall reservoir storage position as on 2 Jul 2026 is at a lower level as the Normal storage for the corresponding period.

“Against this backdrop, we expect CPI to settle at 4.3 per cent in Jun’26, with risks tilted to the upside,” she said.

Radhika Rao, Senior Economist at DBS Bank also expects headline number to cross 4 per cent mark. “June CPI inflation out next week is expected to rise marginally to 4.1 per cent y-o-y from 3.9 per cent the month before, on continued normalisation in food segments and pass-through of fuel costs through the related segments,” she said while adding that beyond food and fuel, upside risks to core inflation appear limited, amid softer gold and precious metal prices and little scope for further pump price adjustments.