In June 2024, India’s Consumer Price Index (CPI) inflation rose to 5.08% YoY from 4.80% YoY in the previous month. The rise in headline inflation was driven by the increase in food inflation to 8.4% YoY from 7.9% YoY in the previous month. Vegetables remained the primary driver of inflation, followed by cereals. Together, they account for 15.7% of the weight in the CPI basket but contributed a significant 51% to headline inflation in June 2024. Food inflation also remained broad-based, with 46% of items in the food basket witnessing inflation rates surpassing 6%.

Core inflation, which excludes food and fuel, remained close to the series low at 3.15% YoY. The refined measures of core inflation, which further exclude valuables and transportation fuels, also reflect muted underlying inflationary pressures.

The monsoon’s recovery in early July bodes well for the inflation trajectory. As of July 12^th, the monsoon has recovered to -3% of the long-period average after being close to -20% deficient in mid-June 2024. The central region has experienced poor rainfall, while all other regions have received normal or close-to-normal rainfall.

We anticipate inflation to average around 4.3-4.5% YoY in FY25. The food prices may continue to impart volatility to headline inflation. RBI might consider shifting the policy stance to ‘neutral’ in the August 2024 MPC meeting as a normal or above-normal monsoon is expected to ease food inflation. Adopting a neutral policy stance will allow the RBI to respond swiftly with a rate cut if warranted by the data.

Click here to read the full report