Early food price data suggests June CPI inflation may fall further to 2-2.1%

The June CPI inflation print will also benefit from an extremely favourable base effect, while will help drag down inflation close to the lower end of the Reserve Bank of India’s (RBI) mandated target range of 2-6 per cent.

Tomatoes on the rise

To be sure, vegetables have become dearer over the last couple of weeks. As per the consumer affairs department, prices of brinjals are up 5.5 per cent month-on-month so far in June, while those of tomatoes are up a huge 19.9 per cent. Potatoes and onions, however, are seemingly cancelling each other out: while the price of the former is up 2.5 per cent, onions are down 2.2 per cent.

“Based on the month-to-date retail food price data, we are tracking June inflation at ~2.1 per cent y/y. While price pressures will remain contained due to base effects, we have started witnessing the typical summer increase in vegetable prices in the early days of June. That said, these increases for now appear to be smaller compared with the past two years,” Barclays’ economists led by Aastha Gudwani said in a note last week.

Japanese brokerage Nomura’s economists see June CPI inflation tracking at 2 per cent, while Soumya Kanti Ghosh, State Bank of India’s Group Chief Economic Adviser, noted headline inflation “sans a la tomatina could rapidly descend towards 2 per cent or below by July”.

The RBI expects CPI inflation to average 2.9 per cent in the first quarter of the current fiscal. Even if inflation stays unchanged around 2.8 per cent in June, the central bank’s quarterly forecast will be met.

RBI forecasts conservative

Even though the RBI on June 6 lowered its inflation forecast for 2025-26 by 30 basis points (bps) to 3.7 per cent, most economists think the central bank’s projection will be undershot meaningfully, with ICICI Bank cutting its full-year forecast to 3.3 per cent in light of the May CPI data, joining Nomura at the lower end of economists’ projections.

Beyond the ongoing quarter, the RBI expects inflation to rise to 3.4 per cent in July-September, 3.9 per cent in October-December, and end the fiscal at 4.4 per cent. However, according to HSBC, inflation is likely to average around 2.5 per cent for the next six months.

“It is likely that inflation in April-December period will average lower than RBI forecast, with our estimates pegged to be in the 2 per cent handle throughout this period. However, inflation in January-March next year may exceed 4.5 per cent… It is likely that central bank has been conservative with its forecasts, and has also attempted to communicate a more smoothed quarterly profile, leading to disparities versus our own forecasts,” ICICI Securities Primary Dealership said in a report.