Breaching the target: on India’s retail inflation

India’s retail inflation breached the RBI’s 4% target for the first time under the new CPI series, rising to 4.38% in June from 3.93% in May and about 2.7% a year earlier. The latest print reflects a broader pass-through of price pressures that had, until recently, remained concentrated at the producer level, largely driven by spiralling transport and fuel costs since the U.S.-Iran conflict in late February. Consequently, the gap between wholesale and retail inflation has only marginally narrowed. Wholesale inflation (WPI), now based on 2022-23, remained elevated at 9.87% in June, up from 9.68% in May. Fuel and power continued to exert the greatest pressure on producers, recording inflation of 27.41%, only marginally lower than May’s 28.18%. As India imports nearly 90% of its crude oil requirements, the value of merchandise imports surged to $70.8 billion in June from about $54.1 billion a year earlier, even though import volumes did not rise proportionately. This underscores how imported inflation, amplified by crude prices that briefly crossed $110 a barrel, has driven systemic price pressures across the economy. The rupee’s sharp depreciation during the conflict added to these pressures, although RBI intervention in the foreign exchange market helped cushion the fall.