Rising Vegetable Prices May Push India's Inflation Towards 5.5 Per Cent: Economists

India’s inflation eased to between 4 per cent and 5 per cent in April and May, inching towards the RBI's 4 per cent target, and likely held below 5 per cent in June, partly due to a supportive base

A sudden surge in vegetable prices, especially tomatoes, over the past few weeks could push India's retail inflation towards 5.5 per cent in the July-September quarter, citing three economists news agency Reuters said. According to the report, India’s inflation eased to between 4 per cent and 5 per cent in April and May, inching towards the RBI's 4 per cent target, and likely held below 5 per cent in June as well, partly due to a supportive base, data due Wednesday is expected to show.

Gaura Sen Gupta, an economist at IDFC First Bank told Reuters that if the spike in vegetable prices sustains, it could push July inflation towards 6 per cent. Vegetable prices, on a consumer price index (CPI)-weighted basis, are up 34 per cent so far in July, after rising 18 per cent in June, said Sen Gupta, based on data provided by the National Horticulture Board.

Kaushik Das, Deutsche Bank's chief India economist, in a note on Friday, said, “Even if prices start to cool off, inflation could hit 5.5 per cent over July to September.” That is marginally higher than the 5.2 per cent forecast by the Reserve Bank of India (RBI).

"While tomato prices have already increased sharply due to weather disruptions, other food items are also on the rise and the cumulative impact of these may be felt more in July than June," Das wrote.

India's retail inflation dropped to 4.25per cent in May from 4.7 per cent in April, according to a data from the Ministry of Statistics and Programme Implementation on Monday. The consumer price-based index (CPI) inflation in May is lowest in 25 months. The food inflation also eased to 2.91 per cent in April. It was 3.84 per cent in the month of April. The food basket accounts for nearly half of the CPI. While, inflation in fuel and light also eased to 4.64 per cent, from 5.52 per cent in April.

Nomura's economists expect inflation to average around 5.5 per cent over July and August and while that will not force a rate hike, they expect it will keep monetary policy tight.

RBI Governor Shaktikanta Das has maintained that the pause in rate hikes over the past two meetings should not be seen as a pivot as the disinflation process will be protracted.