June CPI jumps to 22-month high, dampens rate cut hopes

NEW DELHI: June consumer price index inflation jumped to a 22-month high at 5.77 percent compared with 5.76 percent dampening hopes of a rate cut in the offering by the outgoing Governor of the Reserve Bank of India Raghuram Rajan.

In June's policy review meet, RBI Governor Raghuram Rajan kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation.

The central bank has set a target of 5% retail inflation by March 2017.

Monsoon rains, the lifeblood of India's agriculture-dependent economy, arrived a week later than usual this year and are crucial for the planting of summer-sown crops such as cotton, rice, soybean and sugarcane.

The Index of Industrial Production for the month of May jumped to 1.2% compared with -1.35% a month ago boosted by the manufacturing and the capital goods sector. The RBI may consider a possible rate reduction to boost investment.

However, CPI food inflation continued to rise in June, and stood at 7.79% compared with 7.55% a month earlier. June CPI vegetable inflation also rose to 14.74% compared with 10.77% in May.

The manufacturing sector output was a pleasant surprise at an increase to 0.7% compared with -3.1% on a month-on-month basis. Capital goods output declined to -12.4% compared with -24.9% monthly.