India's annual inflation rate increased in June for the first time in five months, driven by a rise in food prices. According to preliminary data released by the government on Wednesday, consumer prices rose by 4.81% compared to the same month last year. This is an upward revision from May's 4.31% increase.
Higher Than Expected
The latest inflation reading surpassed economists' expectations. Experts polled by FactSet had predicted a decrease to 4.2%. It is worth noting that May's inflation rate was the lowest it had been in 25 months. Despite the increase, the current inflation rate aligns with the target range set by India's central bank of 2% to 6%.
Food and Beverages Prices Drive the Increase
The cost of food and beverages, which account for a significant portion of the consumer price index, rose by 4.63% in June. This is higher than the 3.29% recorded in May. In comparison, clothing and footwear saw an inflation rate of 6.19% in June, while fuel and light stood at 3.92%. Both sectors experienced a cooling effect compared to May.
Impact on Interest Rates
With this rise in inflation, it is expected that India's central bank will maintain its current interest rates and refrain from making any cuts. Last month, the benchmark interest rate was held steady at 6.50%.
In conclusion, India's inflation rate has seen an increase due to higher food prices. While this surpasses expectations, it remains within the target range set by the central bank. The impact on interest rates is expected to be minimal, as the current rate will likely be maintained going forward.
