India: Gradual firming CPI supports RBI patience – Societe Generale

Societe Generale strategist Kunal Kundu expects India’s June 2026 headline Consumer Price Index (CPI) inflation to print around 4.1% year-on-year, slightly above May’s 3.9% but still within the RBI’s tolerance band. Kundu highlights food, fuel and services as key drivers, while noting partial and delayed pass-through from wholesale prices. It argues that competitive conditions, policy buffers and moderate demand should prevent a sustained inflation acceleration.

Food, fuel and core inflation dynamics

"India's June 2026 headline CPI inflation is likely to print at around 4.1% yoy, marking a modest acceleration from 3.9% in May while remaining comfortably within the RBI’s inflation tolerance band. The expected increase is less a reflection of broad-based inflationary pressures and more a consequence of a gradual firming in food, fuel and select services categories over recent months."

"At the same time, despite a growing divergence between wholesale and consumer prices following the sharp increase in global commodity and energy costs, the transmission from producer prices to retail inflation is likely to remain partial and delayed."

"Consequently, while core CPI may move incrementally higher, it remains consistent with an inflation environment centred around the RBI's target rather than one characterised by persistent overheating. A key question for markets is why consumer inflation remains near 4% even as wholesale price pressures have increased materially. The answer lies in the nature of the current shock and the structure of domestic demand."

"Together, these factors suggest that the widening gap between WPI and CPI is better interpreted as evidence of margin pressure within the production chain rather than an imminent surge in retail inflation.

"In sum, a June 2026 CPI print of approximately 4.1% yoy would be consistent with a backdrop of gradually firming food and energy prices, modestly higher services inflation and a slow normalisation of core inflation.

"As a result, inflation is likely to move modestly above recent lows rather than enter a sustained acceleration phase, supporting the case for continued policy patience from the RBI."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)