In June 2023, India Consumer Price Index (CPI) inflation increased to 4.81% YoY from 4.31% in May. Erratic weather conditions, including a delayed monsoon and uneven distribution of rainfall, have resulted in higher food prices. The food and beverages inflation surged to 4.6% YoY in June 2023, up from 3.3% YoY in the previous month. Notably, vegetable prices, particularly tomatoes, experienced a sharp increase during the month. Additionally, prices of cereals like wheat and rice, as well as pulses such as arhar dal, also increased more than the previous month. The rainfall distribution has been highly uneven with the North-west India witnessing excess rainfall while the Southern Peninsula continues to remain in deficit.

Core inflation remains steady, despite the fall in gold and silver prices. The underlying inflation momentum continues to ease in June, as evident by the fall in refined measures of core inflation (which excludes transportation fuel and valuables).

We expect inflation to average around 5.0-5.5% in FY24. Recent increase in tomato prices has pushed the inflation trajectory upwards. Weak monsoon or uneven spatial and temporal distribution of rainfall is the most significant near-term risk to the inflation trajectory. RBI expected to remain in ‘wait and watch’ mode.

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