(Corrects paragraph 1 to say inflation breached target for the first time in 17 months, not 16 months)
By Shubham Batra
NEW DELHI, July 13 (Reuters) – India’s retail inflation accelerated to 4.38% in June, government data showed on Monday, breaching the central bank’s 4% target for the first time in 17 months and setting the stage for an interest rate hiking cycle.
The print was above the 4.3% forecast in a Reuters poll of economists and was also the highest since India revamped the consumer price index in January.
India’s central bank kept its key interest rate unchanged at 5.25% in June but raised its inflation forecast for the fiscal year to 5.1% from 4.6% earlier, watching for knock-on impact from supply-driven pressures.
Inflation was led by higher fuel and food costs, which rose amid Iran war-driven supply disruptions and a delay in seasonal rains.
State-owned fuel retailers raised prices four times in May, pushing up transport inflation to 4.31%, quicker than the 1.75% rise in May.
Food inflation accelerated to 5.32% in June from 4.78% in May, on the back of weak monsoon showers. Price pressures could reignite if El Nino, a weather pattern typically associated with weaker monsoon rains in India, disrupts crop production.
The monsoon brings about 70% of India’s annual rainfall and is critical for agriculture and rural incomes, with nearly half of farmland lacking irrigation and millions dependent on farming for their livelihood.
Flaring up of tensions in the Middle East have pushed up global crude prices again, worsening the inflation outlook. India is the world’s third-largest crude importer and consumer.
The federal government, in its monthly report released before the Middle East conflict escalated again, said the easing global commodity prices, including crude oil and urea, may help reduce imported inflationary pressures.
(Reporting by Shubham Batra in New Delhi; Editing by Mrigank Dhaniwala)
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