Consumer price inflation picked up a little more than expected in June 2015, with the index moving up 5.4% more than the same time last year. This is the highest headline number since October 2014, and a little surprising since there wasn’t anything like this that was expected:

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Both Rural and Urban inflation have perked up, and the increase in inflation is much more in rural:

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Food inflation is up over the last month , but so are every other subcomponent  except education and housing. The upward pressure on inflation is surprisingly large.

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And finally, what is a serious worry: Core inflation comes back up to the highest level since October 2014. Remember that core inflation is the index minus food and fuel. If we remove those, core inflation is up to 4.6%, the highest since October 2014. This is important because in October 2014, crude crashed. That took a lot of prices down. Come October we won’t have that base effect anymore. And if prices are rising even in core territory, it’s a little dangerous.

image No Rate Cut?

Banks have hardly, if any, cut their lending rates. Unless they do so, there will simply be no cut by the Reserve Bank (unless there is a crisis, because India in a crisis is like China).

So we don’t expect the RBI to cut rates. This inflation headline number (5.4%) is largely within RBI parameters (it expected 4.4% to 6%) which therefore would not worry it too much. And the core inflation rise is only nascent and a source of future worry (post October).

At this point we don’t expect any action from the central bank. Markets will probably have a bigger issue with results or worldwide issues, and brush away the numbers on inflation.

Now, tell them about it: