The most recent data on the Consumer Price Index has divulged a significant resurgence in retail inflation, highlighting the necessity for the monetary authorities of the RBI to maintain a firm focus on ensuring price stability. The prevailing figures reveal a striking increase, as June's provisional inflation reading based on the CPI soared by half a percentage point, reaching a three-month high of 4.81%.
The resurgence in inflation primarily stems from the food and beverages group, which holds the largest share of approximately 46% within the CPI. In comparison to May's levels, this group experienced a noteworthy rise of 128 basis points, resulting in an inflation rate of 4.63%. The inflationary trend in food prices was widespread, with 10 out of the 12 sub-groups witnessing year-on-year increases. Cereals exhibited a substantial 12.7% price gain, eggs showed a 7% increase, dairy products experienced inflation of 8.56%, pulses saw a rise of 10.5%, and spices witnessed gains exceeding 19%.
Although vegetables constitute only 6% of the CPI's weight and are the third-largest component within the food basket, their disinflation narrowed by more than 700 basis points due to a significant surge in prices during June. Month-on-month, vegetable price inflation soared to 12.7%, marking the highest sequential rate of price gains in the essential food group since October 2021. Tomatoes emerged as the primary contributor to this surge, with prices skyrocketing by 64% compared to May. Except for three vegetables, namely lady's finger and lemon, all others in the 19-member basket, including commonly used potatoes and onions, registered sharp sequential inflation.
What makes this year-on-year acceleration in price gains even more noteworthy is that it occurred despite a high base, with June 2022 witnessing inflation at 7.01%. This indicates that price pressures are regaining a disconcerting momentum. Core inflation, which excludes the food, fuel, and light groups, remained stagnant at 5.16%, barely deviating from May's pace of 5.17%. Among non-food items, clothing and footwear, as well as health and personal care, experienced price gains exceeding 6% in June. Moreover, education prices continued their steady ascent.
Against the backdrop of erratic monsoon rains, the outlook for kharif crop output relies heavily on bridging the sowing shortfalls during the remainder of July. As of July 7, overall kharif sowing was 8.7% lower compared to the previous year, with essential staples like rice and pulses displaying shortfalls of 24% and 26%, respectively. Furthermore, oilseeds exhibited a 14% deficiency compared to 2022 levels. These conditions pose a genuine risk that the hard-earned gains in anchoring inflation expectations may unravel in the upcoming months. Therefore, policymakers must tighten their grip on prices to prevent the broader economic recovery from faltering.
