India food inflation inches to 10.8%

Almost all sub-segments of retail inflation continue to register in the 8-11% range.

According to Nomura, food inflation inched higher to 10.8% y-o-y due to rising vegetable prices. CPI inflation in the “miscellaneous” category, a proxy for services, also remained high at 8.2% y-o-y on the rising cost of transportation and household requisites.

India‟s CPI inflation moderated to 10% y-o-y in June from 10.4% in May. The moderation was mainly due to lower housing inflation owing to base effects. As a result, core CPI inflation (ex-food and fuel) moderated to 9.2% y-o-y from 10.3%.

Here's more from Nomura:

The moderation in CPI inflation from last month offers little comfort, however, as it remains in double-digits. It is not just food prices, but almost all sub-segments of retail inflation continue to register in the 8-11% range. The wedge between WPI and CPI inflation also remains elevated (mainly due to the higher weight and faster inflation rate in food and services baskets of the CPI).

Looking ahead, the biggest risk to CPI inflation is the outlook on food prices, which forms around 43% of the CPI basket, and is likely to remain under pressure due to the recent increase in minimum support prices and adverse monsoon rains. Fuel price hikes are also pending. From a policy perspective, the Reserve Bank of India does not rely solely on this CPI series due to its limited history. However, this is an important input as it reflects inflation faced by households, and as such, suggests that it is too early to lower the guard on inflation. We expect all policy rates to be left unchanged on 31 July.