India Inflation Accelerates in June، Justifying Rate Pause

India’s inflation accelerated to a four-month high in June، justifying the central bank’s decision to keep interest rates higher for longer.
The consumer price index rose 5.08% from a year earlier، compared with 4.75% in May، the Statistics Ministry said Friday. That’s faster than the median forecast of a 4.80% increase predicted by economists in a Bloomberg survey.
Governor Shaktikanta Das said on Thursday that inflation is moving very slowly towards the Reserve Bank of India’s 4% target and that it’s premature to discuss interest rate cuts.

Keeping policy unchanged

The RBI has kept its policy rate unchanged at 6.5% for more than a year though economists are betting the central bank is getting close to pivoting. A consensus appears to be emerging among the external members of the monetary policy committee that high interest rates are impeding growth.
Food prices، which make up about half of the consumer price basket، climbed 9.36% from a year ago، compared to 8.69% in May. Core inflation، which excludes volatile food and energy costs، jumped to 3.15% in June from a year earlier، compared to 3.12% in May، according to calculations from Bloomberg Economics.
The monsoon، which irrigates half of the nation’s farmland، has covered the entire country، providing some relief to farmers. Sowing of monsoon crops like rice and pulses will gather momentum in the coming days.
“We expect the better sowing patterns and spatial distribution of rains to eventually ease the price pressures،” said Upasna Bhardwaj، chief economist of Kotak Mahindra Bank. However، the rise in prices means that the central bank will be in no hurry to ease monetary policy anytime soon، she said.
Housing prices rose 2.69% from a year earlier، compared to 2.56% the previous month.
Clothing and footwear costs remained steady at 2.73% in June from a year earlier، compared to 2.74% in May.
Fuel and electricity costs fell 3.66% last month.
Separately، factory output grew 5.9% in May، compared to 5% in the previous month.