New Delhi: The cocktail of rising fuel prices and the lack of rain has started to pinch people’s wallets. According to government-released data, inflation reached 4.38% in June, rising from 3.9% in May, breaching the RBI’s 4% target for the first time in six months.
The disruption in oil supplies from the Middle East due to the US-Iran war forced the goverment to finally hike prices after delaying the same for weeks, forcing transport inflation to skyrocket to 4.31% in June alone. This meant a sharp inflation of 7.70% in freight and good transport services resulting into higher retail prices across the board.
Along with that, the steep monsoon deficit in June due to the El Niño weather pattern has affected crop yields, with the Consumer Food Price Index (CFPI) climbing to 5.32% in June against 4.78% in the previous month. This has particularly hit rural households, which have seen their inflation rise to 4.74% from 3.92% recorded in urban areas.
Several essential commodities have experienced sharp double digit price rises, even as delayed rains have scuttled sowing plans across the country. WIth the monsoon being critical for irrigation and bring about 70% of India’s annual rainfal, price pressures on food items could increase further.
According to Radhika Rao, a senior Economist at DBS Bank Singapore, the government will have to remain vigilant with these geopolitical and weather risks.
“June inflation was slightly above consensus, on continued normalisation in food segments and pass-through of increase in pump prices undertaken in mid-May.
Markets are also focused on the spatial and geographical spread of ongoing southwest monsoon. The lack of discernible spillovers to demand should limit any market tendency to frontload rate hike expectations.” she said in a Reuters report.
