India’s inflation accelerated last month, rising above the Reserve Bank of India’s target for the first time in nearly a year and a half and keeping policymakers on guard.
The consumer price index rose to 4.38% in June from a year earlier, according to official data released on Monday. The reading was above the median estimate of 4.20% in a Bloomberg survey of economists and exceeded the RBI’s 4% target, though it remained within the central bank’s 2%-6% tolerance band. Inflation was 3.93% in May.
India’s 10-year government bonds traded 2 basis points higher at 6.73%, and were little changed after the inflation print.
The pickup comes as retail fuel prices remain elevated following recent increases by state-owned retailers. Fresh US-Iran strikes after a brief truce renewed concerns over shipping through the Strait of Hormuz, a key artery for global oil trade, pushing crude prices close to $80 a barrel on Monday.
Weather remains another key inflation risk. The southwest monsoon, which accounts for about 70% of India’s annual rainfall, has been uneven, even as the nationwide rainfall deficit narrowed from about 40% at the end of June to around 18% as of July 12.
“We continue to expect inflation to rise further over the coming months,” said Alexandra Hermann Prasad, lead economist at Oxford Economics.
Even so, the latest inflation print alone is unlikely to alter the RBI’s policy stance. Governor Sanjay Malhotra said last month that the central bank would respond only if price pressures broadened, while continuing to closely monitor developments in oil markets and the progress of the monsoon.
The RBI left its benchmark policy rate unchanged at 5.25% at its last policy meeting and raised its inflation forecast to 5.1% for the fiscal year ending in March.
“While the material easing in crude oil prices has reduced the likelihood of an early rate hike, the renewal of tensions in West Asia warrants some caution,” said Aditi Nayar, chief economist at ICRA Ltd. She expects the RBI to “maintain status quo” at its next policy meeting in August.
Disclaimer: This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.