India’s retail inflation was down marginally in June. However, it remained above the upper limit of RBI’s inflation target for the second straight month. This comes as petrol and diesel prices have been on a consistent rise, maintaining pressure on the government to cut taxes on fuel.
As per the data released by the National Statistical Office (NSO) the retail inflation slowed to 6.26 per cent in June from 6.30 per cent in May. Although the food inflation quickened marginally to 5.15 per cent.
Also, during the month, prices of eggs, edible oils, fruits and pulses accelerated in double digits. Fuel inflation grew 12.7 per cent on account of the rising petrol and diesel rates. This in turn raises the cost of transport and communication services.
However, core inflation excluding food and fuel items eased to 6.2 per cent in June from 6.4 per cent in May.
Moreover, the monetary policy committee (MPC) aims to achieve a retail inflation target of 4 per cent, plus or minus 2 per cent.
Even though an elevated inflation will put pressure on RBI but it is expected to maintain policy rates unchanged at the next monetary policy review in August to protect the fragile economic recovery post Covid-19 second wave.
But as countrywide lockdown comes to an end in phases, the domestic demand conditions are expected to improve gradually. Furthermore, the data released by NSO shows the factory output grew 29.3 per cent year-on-year in May.
How Inflation affects the common man?
Inflation also increases the import cost for some of the crucial consumables, pushing inflation higher. Controlling inflation remains one of the vital mandates for the Reserve Bank of India.
As any unchecked rise can force the Reserve Bank of India to increase interest rates.
And an increase in interest rates means lesser liquidity in the system, the availability of which is must for the economy.
Also, a rise in inflation will lead to rise in bond yields thereby making the government borrowing costlier.
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