MUMBAI – India's inflation slowed to a four-month low in June, data showed Monday, but a weak monsoon could push up food prices and pose headaches for the new government.
The Wholesale Price Index, the closest-watched cost of living monitor, rose to 5.43 per cent year-on-year in June, the slowest pace since February, and down from 6.01 per cent in May, the commerce ministry said in a release. Prime Minister Narendra Modi's right-wing government came to power in May on a pledge to wrestle down stubbornly-high inflation which has angered legions of voters.
The government has since ordered states to crack down on hoarders, large traders who keep food in stock while waiting for prices to rise, and set limits on the export of staples such as onions and potatoes. But the mounting threat that a weak annual monsoon, which is vital to farmers, will slash crop production and drive up food prices could encourage the central bank to keep interest rates on hold.
"The (June) fall is more due to statistical reasons," said Rupa Rege Nitsure, chief economist with Bank of Baroda. "More worrisome is the huge deficit in rainfall across key areas of western India and simultaneous pick up in core inflation." The price of food across-the-board rose 2.2 per cent in June from a year earlier, while fuel prices rose by 0.1 per cent.
"If the monsoon rains fail in the coming months, concerns of higher food inflation are likely to return," said Siddhartha Sanyal, chief India economist at Barclays, in a research note. Raghuram Rajan, chief of the Reserve Bank of India (RBI), last week indicated that interest rates would not fall unless inflation was controlled. Despite pleas from business to lower rates to kick-start the ailing economy, the RBI insists monetary policy must remain tight to tame inflation and ensure long-term growth.
The RBI has raised its key lending rate three times since last September. It now stands at eight per cent. The next policy review is due on August 5. The government will release consumer price data later Monday.