Retail inflation in June crosses RBI's 4% target; fuel prices drive broad-based rise, says Crisil

India's retail inflation breached the Reserve Bank of India's (RBI) 4% medium-term target for the first time since January 2025, with the Consumer Price Index (CPI) rising to 4.4% in June from 3.9% in May, driven by higher food and fuel prices, according to a Crisil report. 

The report said inflationary pressures were broad-based, with the non-food segment contributing more to the overall rise than food. Food inflation increased to 5.3% in June from 4.8% in May due to an unfavourable base effect and persistently high summer temperatures that pushed prices higher after months of unusually low inflation. 

Fuel-related inflation saw a sharp jump as June reflected the full impact of the cumulative ₹7.5 per litre increase in petrol and diesel prices implemented in mid-May. Crisil said the higher fuel costs are expected to have wider repercussions across the economy through increased transportation expenses. 

Meanwhile, core inflation, which excludes fuel for personal transport but includes gold and silver, remained broadly stable at 3.9% in June, indicating that the pass-through of higher input and energy costs to consumers has been gradual. Core inflation excluding gold and silver edged up to 2.5% from 2.4% in May. 

Food inflation gathers pace 

Food and beverage inflation accelerated to 5.1% in June from 4.5% in May while overall food inflation rose to 5.3% from 4.8%. Inflation in cereals and cereal products increased to 0.9% from 0.3%, while pulses returned to inflation at 1.4% after a prolonged period of deflation. However, Crisil noted that duty-free imports of tur until March 2027 could help offset domestic supply shortages and limit further price increases. 

Among vegetables, inflation eased slightly to 5.6% from 6.1%, helped by softer tomato inflation at 31.9% compared with 48.4% in May. Potato prices remained in deflation, although the pace moderated to -20.3% from -23.7% while onion prices returned to inflation at 4.7% after an extended deflationary phase due to the arrival of higher-priced rabi stocks. 

High temperatures also pushed up inflation in meat (9.7%), milk, dairy products and eggs (4.1%), fish and seafood (7.7%), and fruits and nuts (8.6%). 

Edible oils and fats continued to witness elevated inflation at 9.7%, led by vegetable oils, where inflation rose to 11.2%. Crisil attributed the increase to elevated global prices following the West Asia conflict, higher freight costs and rupee depreciation, all of which raised import costs. 

Inflation in ready-made food and other food products also accelerated to 6.8% from 5.3%, largely due to higher spice prices and the pass-through of increased packaging costs. 

Fuel inflation rises 

Fuel-related inflation rose sharply to 4.5% in June from 1.9% in May, driven by both cooking and transportation fuels. Inflation in electricity, gas and other fuels increased to 1.8%, although electricity prices remained in deflation at -3.2%. 

LPG and piped natural gas (PNG) inflation doubled to 4.6% from 2.2% following the ₹29 increase in domestic LPG cylinder prices announced in early June. Crisil noted that domestic LPG prices have risen by a cumulative ₹89 per cylinder since the onset of the West Asia conflict. 

Inflation in other fuel categories, including kerosene, coal, and firewood, rose to 7.0% from 6.6%, reflecting substitution as consumers shifted away from more expensive LPG. 

Personal transport fuel inflation climbed sharply to 7.6% from 3.1%, with petrol inflation rising to 7.5% and diesel inflation to 8.4%, as June captured the full impact of the mid-May fuel price hikes. 

Core inflation remains stable 

Despite higher fuel costs, core inflation remained broadly unchanged at 3.9% while core inflation excluding gold and silver increased marginally to 2.5%. Inflation in the transport category accelerated to 4.3% from 1.8%, although domestic airfare inflation moderated to 10.1% from 15.1%. 

Restaurant and accommodation services inflation rose to 6.9% from 5.7%, reflecting the pass-through of higher cooking fuel costs. However, Crisil expects some moderation in coming months following the reduction in LPG prices announced in early July. 

The personal care, social protection, and miscellaneous category saw inflation ease to 16.7% from 18.5%, mainly due to slower increases in gold, diamond, and platinum jewellery prices, as well as a moderation in silver jewellery inflation. 

House rent inflation remained steady at 2% for the fifth consecutive month, while inflation in furnishings and household maintenance increased to 2.2%. Inflation also edged higher in clothing and footwear (3.2%) and education services (3.3%) while easing slightly in health (1.4%) and recreation, sports and culture (1.7%).