Inflation: Oils and fats, transport and fuel majorly responsible for high June level

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Even as the consumer price index-based inflation recorded a rise of 6.26% in June, much above the 6% ceiling of the tolerance band of Reserve Bank of India, research agency QuantEco has said that only three items oils and fats, transport and communication and fuel and light, together contributed as much as 281 bps to headline inflation. While the CPI inflation was 6.3% in May, it crawled down to 6.26% in June. This is the second consecutive month when the rate was higher than the 2%-6% band of tolerable limits followed by the central bank.

Food inflation eased

In a report earlier this week, the agency’s economists point out that food inflation eased from 1.71% in May 2021 to 1.18% in June 2021, “but remained elevated with upward pressure led by eggs, vegetables, prepared meals and oils and fats”.

The agency admitted that compared to May 2021, there was a softening of prices in spices, non-alcoholic beverages, pulses and cereals.

Import of pulses

Observing the steps taken to address the high inflation, the agency’s economist Yuvika Singhal said: “The easing of supply side disruptions as curbs on economic activity were lifted, along with conscious supply side interventions by the government such as – allowing imports of pulses after a gap of 3 years, imposition of stock holding limits on pulses, reduction in excise duties on select edible oils for a period of three months, along with the free distribution of foodgrain under the National Food Security Act until November 2021 may have helped assuage some of the price pressures.”

For the second month transport and communication continued to witness a sequential rise of more than 1% month-on-month (June over May) for the second month. This was attributable to the record retail prices of petrol and diesel.

Commercial LPG cylinder

However, oil marketing companies slashed the price of commercial LPG cylinders from 1,595.50 to 1,473.50 or by Rs 122. The revised prices were effective from June 1 and it helped the fuel inflation to post a smaller sequential increase of 0.31% in June compared to 2.44% in May 2021.

RBI prediction

Reserve Bank of India projected average consumer price index-based inflation at 5.1% for the current financial year. It has predicted CPI inflation at 5.2% in Q1, 5.4% in Q2, 4.7% in Q3 and 5.3% in Q4.

CPI inflation is significant since RBI tracks this figure to formulate its monetary policy response in the bi-monthly meetings.