Rising inflation complicates RBI’s choice

In its last meeting, the RBI’s Monetary Policy Committee had maintained status quo on both rates and stance.

3 min readJul 15, 2026 06:05 AM IST

First published on: Jul 15, 2026 at 06:05 AM IST

Retail inflation has continued to edge upwards, according to the latest data, driven, in part, by the food, transportation and restaurant segments. CPI inflation stood at 4.38 per cent in June, up from 3.93 per cent the month before. This brings inflation in the quarter to 3.9 per cent. While this is marginally lower than the central bank’s most recent projection of 4.2 per cent — this is also the last inflation reading before the August meeting of the RBI’s Monetary Policy Committee — the MPC’s decision isn’t likely to be as straightforward as it may seem.

Disaggregated data shows that food inflation rose to 5.32 per cent, up from 4.78 per cent the month before, with ginger, tomato and raisin witnessing high inflation. But the outlook for food prices remains unclear. The cumulative rainfall in the current monsoon season from June 1 has been 19.3 per cent below normal. This has had an impact on kharif sowing, with overall acreage down 16 per cent from last year. The sowing window is closing. And as El Niño strengthens, the situation is uncertain, complicating matters for the MPC. Alongside the rise in food prices, the sharp increase in inflation in the transport segment reflects the petrol and diesel price hikes — June witnessed the full impact of the mid-May price hikes — while the increase in food and energy prices is finding its way to the restaurant category. Some analysts expect the pass through of higher input and fuel prices into prices of other non-food items to exert further upward pressure, even if gradually.

In its last meeting, the RBI’s Monetary Policy Committee had maintained status quo on both rates and stance. While crude oil prices have fallen off the highs thereafter, renewed hostilities in West Asia have complicated matters — over the last five days, Brent crude oil has edged up 7.5 per cent. Much will depend on how MPC members view the external and internal risks to growth and inflation. Global central banks have already begun to react. In its June meeting, the European Central Bank had raised interest rates. Its next decision will be announced next week. The US Fed is also scheduled to hold its meeting later this month. Their decisions will indicate the direction of monetary policy in developed economies.