Food Price Moderation to Stabilize Inflation
Industry experts predict that food prices will moderate in the coming months, stabilizing inflation around 4-4.5%. This is despite a rise in consumer price inflation (CPI) to 5.08% in June year-over-year.
Rainfall and Agricultural Output
While June rainfall was below average, experts believe it is not a major concern as July and August rains are crucial for the Kharif crop season. Dharmakirti Joshi of Crisil forecasts improved agricultural output and lower food inflation due to monsoon progress and increased sowing.
Non-Food Inflation at Record Low
Non-food inflation has declined for 17 consecutive months, reaching a historic low of 2.3%. This, along with the anticipated drop in food inflation, is expected to bring overall inflation to 4.5%.
RBI’s Inflation Target
Despite the decline in inflation, RBI is expected to maintain its target of 4% durable inflation, suggesting no rate cuts in the upcoming policy.
June Inflation Increase
Inflation, which had reached 12- and 11-month lows in May and April, respectively, reversed its downward trend in June. The CPI inflation was primarily driven by an increase in food and beverages inflation, which rose from 7.9% in May to 8.4% in June.
Outlook
Experts believe that food prices will stabilize in the coming months, leading to an overall inflation trajectory between 4-4.5%. This is supported by rising sowing activity and an adequate rainfall outlook.
Focus on July
ICRA projects a significant decline in CPI inflation in July due to a favorable base effect. However, the pace of sowing in July will be critical to mitigate the impact of rising vegetable prices.
