After 16 months, retail inflation crossed 4% in June; food inflation at 5.32%

The data for June bore the full brunt of the multiple increases in retail fuel prices announced in May, with personal transport inflation rising to 7.35% in June from 3.06% in May, while that for goods was largely steady – albeit elevated – at 7.7%. In May, it was 7.63%.

Inflation for the ‘restaurant and accommodation services’ category, which has risen sharply due to more expensive commercial LPG, continued to move north in June. Having stood at 2.9% in March and 5.75% in May, it rose further to 6.9% in June as eateries raised prices. According to Madan Sabnavis, Chief Economist at Bank of Baroda, restaurant inflation is unlikely to decline even when the energy situation normalises.

At 4.38%, the June headline inflation rate, as measured by the Consumer Price Index (CPI), is higher than May’s 3.93%. Inflation, which is the year-on-year change in prices, has now risen every month in 2026. The last time it was higher was in December 2024, when it stood at 5.22%. However, that figure is as per the old CPI series which had 2012 as the base year.

The new series, data for which begins from January this year, has 2024 as the base year for prices and incorporates new methods to calculate certain components of the inflation rate as well as new data sources.

While the old and new data series are not strictly comparable, this is the first time since January 2025 that consumer prices have risen by more than 4%, which is the Reserve Bank of India’s (RBI) medium term target. As per the central bank’s legal mandate, it must target a 4% inflation rate in a band of 2-6%.

CPI inflation averaged 3.9% in April-June as against the RBI’s latest forecast of 4.2%.

Food, fuel prices

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The Consumer Food Price Index (CFPI) rose 1.7% last month compared to May as against a 1% month-on-month rise in overall prices. Transport inflation, meanwhile, rose sharply to 4.31% in June from 1.75% in May, with the index for the transport category rising 2.6% month-on-month.

The month-on-month increase in the price indices of any category of goods and services is indicative of the momentum in prices. This is a better indicator of how prices are moving as opposed to the inflation rate, which measures prices compared to last year.

In wake of a sharp increase in global energy prices and supply disruptions due to the war in West Asia, pump prices of petrol and diesel were increased four times starting mid-May. As such, the June CPI data reflects the full impact of the fuel price hikes on inflation.

“The risk of further fuel-price increases has diminished as oil prices have retreated from their recent highs, although a rapid reversal also looks unlikely given the fragile US-Iran peace process,” Alexandra Hermann Prasad, Lead Economist at Oxford Economics, said.

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On the food front, these items contributed 185 basis points (bps) to the headline inflation rate of 4.38%, said Dipti Deshpande, Principal Economist at Crisil, as a fading favourable base effect and high temperatures took their toll. As per latest data, the all-India rainfall deficit narrowed to 18% as on July 12 from 43% on June 28.

Aditi Nayar, Chief Economist at ICRA, noted that India usually gets around 32% of its entire season rainfall in July and 29% in August. Additionally, around 55% of the total area sown in the kharif season is typically covered in July. “Consequently, adequate rainfall during July-August remains crucial to support sowing and output and contain inflationary pressures in the ongoing fiscal,” Nayar said.

Policy considerations

According to Prasad of Oxford Economics, the June inflation data “reinforces the RBI’s intention to remain on hold in August”. Megha Arora, Director at India Ratings & Research, noted that inflation may rise further to 4.9% in July, with geopolitical tensions and El Nino conditions remaining upside risks.

“Thus, for the next monetary policy review in August, Ind-Ra expects a status quo on key policy rates,” Arora said.

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The RBI’s Monetary Policy Committee (MPC) is scheduled to next meet August 3-5. On June 5, it had retained the policy repo rate at 5.25%. The central bank had raised its inflation forecast for 2026-27 to 5.1% from 4.6%, with Governor Sanjay Malhotra warning there are indications that average crude oil prices this fiscal would be “substantially higher” than the $85 per barrel.

The average price of India’s crude oil basket has fallen to $70.92 per barrel so far in July from $114.48 per barrel in April.