Retail inflation likely to have remained flat at 4.26% in June: Barclays

Mumbai: Retail inflation is likely to have remained flat at 4.26 per cent in June compared to May, British brokerage Barclays has said, despite soaring vegetable prices and steady fuel prices.

The food and fuel baskets constitute almost 60 per cent of the Consumer Price Index (CPI).

In a note on Wednesday, Barclays India economists led by its head Rahul Bajoria said that retail inflation was likely flat in June compared to 4.25 per cent in May, even though food prices have been trending higher amid broadly stable energy costs and steady core inflation.

It can be noted that vegetable prices led by tomato, potato and onion have remained high in recent weeks. The price of tomatoes has crossed even Rs 140 per kilogram in many markets as the monsoon played truant in June.

"We expect CPI inflation to have remained steady in June, with headline inflation at 4.26 per cent versus 4.25 per cent in May.

"This lack of change in headline inflation masks a sequential pick up in food prices, which we estimate pushed up the headline index by 0.53 per cent month-on-month as against 0.51 per cent in May," as per the note.

According to Barclays, RBI's preferred core inflation is expected to remain flat at 5.17 per cent in June compared to 5.15 per cent in May.

Price rise is likely to continue in clothing and footwear, health and education, household goods and recreation. But, part of that increase will be seasonal, owing to higher demand for consumer durable appliances and recreation activities in the summer, it added.

The on-month rise is partly seasonal as warm weather is leading to higher prices for perishable food items such as tomato. In addition, prices for some non-perishable food also rose as did prices of consumer durable goods and electricity tariffs in a modest manner, the economists noted.

Despite these factors, they expect food inflation to be flattish at 3.5 per cent in June as against 3.3 per cent in May, mostly reflecting a higher base. Sequentially, they estimate food prices rose faster in June than in May when it rose 1.1 per cent, making it the highest level since May 2022.

Within the food basket, momentum varies with persistent price rises being seen in perishables such as fruits and vegetables, plant and meat protein (pulses, milk and meat, fish and eggs) and spices. Price of cooking oil is likely the only component that declined further in June, amid falling international prices, as per the note.

On the fuel inflation, Barclays said it expects some offset in electricity tariffs in states like Karnataka but a further spike in Tamil Nadu and Delhi. Still, overall fuel inflation is likely to fall to 3.4 per cent in June from 4.6 per cent in May.