CRISIL Highlights Growing Concern Over Food Inflation

Vegetable prices continued to be a significant concern, rising to 29.3 per cent in June from 27.4 per cent in May. This increase affected both TOP (tomatoes, onions, potatoes) and non-TOP vegetables

Food inflation increased significantly in June, causing the overall Consumer Price Index (CPI) inflation to rise to 5.1 per cent, up from 4.8 per cent in May. According to a CRISIL report, the surge in food prices, especially in vegetables, cereals, milk, and fruits, has been a significant factor driving this upward trend.

Even with a favourable base effect from the previous year, food inflation surged to 9.4 per cent, primarily fueled by the sustained high prices of vegetables, which have stayed in double digits for eight consecutive months. Vegetable prices continued to be a significant concern, rising to 29.3 per cent in June from 27.4 per cent in May. This increase affected both TOP (tomatoes, onions, potatoes) and non-TOP vegetables.

Inflation in TOP vegetables soared to 48.4 per cent, driven by steep increases in onions (58.5 per cent compared to 38.1 per cent) and potatoes (57.6 per cent compared to 55.3 per cent). Despite a monthly rise in prices, tomato inflation eased to 26.4 per cent from 41.3 per cent, influenced by a high base effect from the previous year.

Non-TOP vegetables experienced increased inflation to 19.7 per cent from 18.8 per cent, driven by rises in leafy vegetables, brinjal, lady's finger, and pumpkin.

Foodgrain inflation remained firm at 10.2 per cent, slightly lower than the previous month. Cereal inflation edged up to 8.8 per cent from 8.7 per cent, primarily due to non-PDS wheat (6.7 per cent vs. 6.5 per cent).

Pulses inflation eased marginally to 16.1 per cent from 17.1 per cent, with notable declines in arhar dal inflation to 26.9 per cent from 32.1 per cent, while other pulses like masur saw an increase (0.9 per cent vs -0.1 per cent) and split gram (18.5 per cent vs 14.8 per cent).

Milk inflation rose for the first time in 13 months due to price hikes by major producers (3 per cent vs. 2.6 per cent). Edible oils inflation continued its fifth consecutive month of lower disinflation (-2.7 per cent vs. -6.7 per cent).

Spice inflation continued to soften, declining for the 10th straight month to 2.1 per cent from 4.3 per cent.

Fuel prices declined by 3.7 per cent year-on-year in June, marking the 10th consecutive month of deflation. This was primarily due to global oil price pressures and government subsidies for LPG, maintaining negative fuel inflation. Liquefied petroleum prices continued to deflate in June (-24.8 per cent).

Electricity inflation moderated to 8.8 per cent from 10.9 per cent, supported by a favourable base, while firewood and woodchips inflation increased to 2.7 per cent from 2.6 per cent.

Non-food inflation continued its decline for the 17th consecutive month, reaching a record low of 2.3 per cent. Core inflation, which dominates non-food inflation, remained unchanged at a record low of 3.1 per cent.

Services inflation eased slightly to a record low of 2.9 per cent, while core goods inflation held steady at 3.2 per cent. Personal care and effects inflation rose to 8.2 per cent from 7.7 per cent, driven by a 19.7 per cent increase in gold prices (vs. 18.2 per cent in May).

Education inflation decreased to 3.6 per cent from 4.1 per cent, driven by softer inflation in tuition fees (3.9 per cent vs. 4.3 per cent).

Rural inflation increased to 9.2 per cent from 8.6 per cent, while urban inflation rose slightly by 20 basis points to 8.8 per cent. Fuel inflation was lower in rural areas (-0.8 per cent) compared to urban areas (-7.7 per cent), and core inflation was higher in rural areas (3.3 per cent vs. 3 per cent). Consequently, rural residents faced higher inflation pressures than their urban counterparts across income groups.