New Delhi, 13 July

India's inflation landscape exhibited spatial variability in June 2024, with 12 out of 22 states reporting inflation rates exceeding the national average of 5.1 per cent, according to SBI research. Odisha recorded the highest inflation at 7.22 per cent, followed closely by Bihar at 6.37 per cent and Karnataka at 5.98 per cent. This divergence highlights regional economic disparities as the country grapples with rising prices.

Concurrently, the Index of Industrial Production (IIP) surged to a seven-month high of 5.9 per cent in May, reflecting robust growth in mining (5.9 per cent), manufacturing (4.6 per cent), and a remarkable increase in electricity production (13.7 per cent). These contrasting trends underscore the complex interplay between inflation and industrial performance across India.

The urban-rural inflation divide continued, with rural inflation increasing to 5.66 per cent and urban inflation rising to 4.39 per cent in June. This persistent gap is driven by higher food prices and a greater weight of food items in the rural consumption basket (54.2 per cent) compared to urban areas (36.3 per cent).

The primary contributors to the inflation surge in June were food items, particularly vegetables, which saw a dramatic price increase of 29.32 per cent. Pulses followed with a 16.07 per cent rise, while cereals contributed an 8.75 per cent inflation rate. These increases are largely attributed to climatic factors affecting vegetable and protein-based item prices.

Despite these spikes, there is no widespread inflationary pressure on protein items overall. Service prices, specifically in personal care and effects, also contributed to the overall inflation, although most sub-components registered growth below the average CPI, indicating localized inflationary pressures.

On the supply side, the Index of Industrial Production (IIP) rose to a seven-month high of 5.9 per cent in May, up from a revised 5.4 per cent in April. This growth was driven by a 5.9 per cent increase in mining, a 4.6 per cent rise in manufacturing, and a significant 13.7 per cent boost in electricity production.

For the period of April-May 2024, industrial growth averaged 5.4 per cent, compared to 5.1 per cent in the same period last year.

State-wise analysis revealed that inflation rates varied significantly. Odisha recorded the highest inflation rate at 7.22 per cent, followed by Bihar at 6.37 per cent and Karnataka at 5.98 per cent. In contrast, eight states had inflation rates below the national average of 5.1 per cent. Notably, 18 states exhibited higher rural inflation compared to urban areas, continuing a trend observed in previous months.

Current market prices for major food crops like maize, arhar, urad, paddy, sesamum, wheat, gram, and masur are higher than the Minimum Support Price (MSP), indicating effective price discovery in agricultural markets.

However, for crops like jowar, bajra, ragi, moong, soybean, and cotton, market prices remain below MSP. This disparity suggests a need for government intervention to support farmers if market prices fall significantly below MSP. Additionally, sectors with high value addition potential, such as livestock and horticulture, should receive increased policy focus.

The trajectory of inflation in the coming months will largely depend on domestic factors, particularly food prices. CPI inflation is expected to remain around or below 5.0 per cent for the remainder of the fiscal year, with the exception of September 2024. For FY25, the average CPI inflation is projected to be between 4.6 per cent and 4.7 per cent.

The satisfactory progress of the monsoon, with a marginal deficit of -5 per cent in Central India, supports this outlook, mitigating significant deviations. On the global front, the U.S. inflation rate's slight decline by 0.1 per cent from May, bringing the 12-month rate to 3 per cent, the lowest in over three years, may set the stage for a Federal Reserve rate cut by September.

This could influence the Reserve Bank of India's policy stance, potentially leading to adjustments in line with global economic trends. (ANI)