India’s retail inflation rose to a three-month high of 4.81% in June, according to government data.

The rise in June inflation was mainly driven by food and beverages. The hardening of food vegetable prices, especially tomatoes, over the past few weeks led to the rise in inflation.

The consumer-price index (CPI) based inflation has, however, remained within the Reserve Bank of India’s (RBI)upper tolerance limit of 6% for the fourth consecutive month.

Inflation based on the CPI stood at 4.31% (revised upward from 4.25%) in May and 7% in June 2022.

The previous high CPI was in March at 5.66 per cent.

Inflation for the food basket was at 4.49% in June, higher than 2.96% in May. The food basket accounts for nearly half of the CPI.

Last month, the Reserve Bank kept policy rates unchanged at 6.5% and projected retail inflation for the current fiscal to average at 5.1%, with June quarter inflation pegged at 4.6%.

Aditi Nayar, chief economist at ICRA, said the spike in vegetable prices is set to push the CPI inflation to an uncomfortable 5.3-5.5% in July 2023. 

"We expect the vegetable price shock to result in the Q2 FY2024 CPI inflation exceeding the MPC's last forecast of 5.2%. Accordingly, we anticipate that the Committee will retain its hawkish tone in August 2023, keep the repo rate unchanged and signal that a pivot to rate cuts remains distant," she added.