Retail inflation based on Consumer Price Index (CPI) eased a tad to 7.01 per cent in June, but remained over 7 per cent for third consecutive month, data released by Statistics Ministry shows. Experts expect another round of policy interest rate hike next month.

Meanwhile, another data released by the Statistics Ministry, factory output growth, strengthened to a 12-month high of 19.6 per cent in May from 6.7 per cent in the previous month.

Rate hike on cards

This is the sixth successive month of retail inflation above the upper band of targeted range of 2-6 per cent. This has already led the Monetary Policy Committee to raise the policy rates twice. With another hike, the interest rates on loans may see one more hike. However, interest rate on deposits also is also expected to rise.

Finance Minister Nirmala Sitharaman said: “I see monsoon being favourable. Agricultural production will be good and rural demand will remain intact. As RBI has estimated, till the start of the second half of the year, both RBI and govt will have to be mindful. We will have to be mindful and watchful how the price movement is. I will keep monitoring item by item to rein in prices for anything that goes haywire. This pointed attack on inflation will need to continue.”

Core inflation (at 5.95 per cent) declined to less than 6 per cent after a gap of three months. There was a marginal decline in food inflation to 7.75 per cent in June from 7.97 per cent in May 2022, mainly due to a sharp decline in oil and fat inflation. Food prices, which account for nearly half of the inflation basket, are expected to remain high due to supply chain issues and crude oil price increases amid geopolitical tensions.

Swati Arora, Senior Economist with HDFC Bank, said that excise duty cuts on petrol and diesel and a correction in edible oils capped the upside pressures on inflation in June. Going forward, CPI inflation is expected to hover above 7 per cent in July-22. The government has directed edible oil companies to reduce prices by up to ₹10/litre in line with a fall in global edible oil prices. It is likely to provide some support to the headline inflation However, on the other hand, a hike in gold import duty and GST rate hikes on large number of mass-consumption items and certain services are likely to keep inflation reading under pressure.

“CPI inflation is expected to remain above 6 per cent until January’23 and ease below 6 per cent post that. For the full year, we expect CPI inflation to average at 6.75 per cent. On the policy front, we expect the RBI to take the policy rate closer to 6 per cent by March’23,” she said.

Industrial growth

At the broad level all segments namely manufacturing, mining and electricity contributed to the growth. While manufacturing, the largest component at broad level grew at 20.6 per cent in May 2022, mining and electricity recorded a yoy growth of 10.9 per cent and 23.5 per cent, respectively.

A note prepared by Sunil Kumar Sinha and Paras Jasrai of India Ratings & Research (Ind-Ra) said as the economic activities despite inflation and global headwinds continues to normalise further, Ind-Ra expects IIP to clock yoy growth in the range of 11-13 per cent in June 2022.

“Going forward, the electricity output is expected to clock double-digit growth again in June. The coal output was up 32.6 per cent yoy in June, and is expected to keep the momentum in the mining sector,” it said.