The Consumer Price Index (CPI) retail inflation was 4.38 percent in June. Food inflation alone surged 5.52 percent compared to 5.32 percent in the previous month.

Overall food inflation in July was at 5.52 percent. The prices of ginger, garlic and onions shot up during the month. The CPI inflation is well within the RBI safe zone, which has 4 per cent as the midpoint. The tolerance zone of the RBI ranges from 2 percent to 6 percent. The RBI’s monetary policy aims to keep inflation within this zone as it balances its objective of promoting economic growth with stability.

RBI Governor Sanjay Malhotra said last week, after the announcement of the monetary policy review, that headline inflation has moved above target mainly because of higher fuel prices, while broader price pressures remain in check. The RBI maintained a status quo on the repo rate to push growth. The Reserve Bank of India, which has been tasked with ensuring CPI remains at 4 percent with a margin of 2 percent on either side, had kept the policy lending rate unchanged earlier this month, citing inflationary concerns.

Economists believe the July inflation uptick is largely driven by food prices, but the rise is not broad-based enough to immediately alter the Reserve Bank of India’s policy stance. While inflation has moved above the RBI’s 4% target for a second consecutive month, it remains within the 2-6 percent tolerance band. Analysts expect the Reserve Bank of India to remain patient as core inflation remains relatively contained. However experts are eyeing the risks from uneven monsoon conditions, higher input costs, fuel prices, geopolitical tensions and global commodity prices. Some economists see the possibility of lending/repo rate hikes later in FY27 if inflation remains elevated, while others expect the RBI to maintain its current stance.

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