By Prof. S.S. SOMRA
India’s retail inflation has climbed back above the RBI’s 4% target, driven primarily by rising food prices. With El Niño threatening Kharif output and food inflation already at 5.32%, policymakers face a difficult balancing act between controlling prices and supporting economic growth. Prof. S.S. Somra analyses the road ahead.
Jaipur, July 14, 2026 — According to data released by the Ministry of Statistics on Monday, India’s retail inflation rate rose to 4.38% in June, exceeding the Reserve Bank of India’s (RBI) medium-term target of 4%. The retail inflation rate, based on the Consumer Price Index (CPI), stood at 3.93% in May. Under the new CPI series (with 2024 as the base year), the retail inflation rate was 2.31% in June of the previous year. The pressure of retail inflation is once again emerging as a challenge for both the economy and the average consumer.
The most concerning aspect is that the primary driver of this rise is the surge in food prices, which directly impacts the kitchens and monthly budgets of ordinary people.
In June, the Food Price Index recorded a month-on-month increase of 1.71%, contributing to a 1.03% rise in the general index. Annual food inflation climbed from 4.78% in May to 5.32%. Core inflation (excluding food and fuel) rose from 3.8% in May to 4.1%. The inflation rate for food and beverages increased from 4.55% in May to 5.05% in June. In June, the inflation rate stood at 4.74% in rural areas and 3.92% in urban areas.
Inflation for “electricity, gas, and other fuels” rose from 0.81% in May to 1.75%. This increase reflects the impact of the rise in Liquefied Petroleum Gas (LPG) prices following the conflict in West Asia.
The inflation rate for transport-related services rose from 1.75% to 4.31%, while the rate for restaurant and accommodation services increased from 5.75% to 6.91%. Food inflation reaching 5.32% indicates a continuous rise in the prices of pulses, vegetables, oilseeds, and other essential commodities.
The fact that the inflation rate is higher in rural areas than in urban areas suggests that the burden falls more heavily on rural households. Meanwhile, rising costs for electricity, gas, transport, and hotel-restaurant services have broadened the scope of inflation.
An El Niño event is anticipated this year, particularly during the latter half of the monsoon season. If rainfall remains below normal, the production of oilseeds, pulses, and other Kharif crops could decline, potentially driving up food prices further.
Although agriculture’s contribution to the Gross Domestic Product (GDP) may be limited, approximately 40% to 45% of the country’s workforce still relies on the sector.
Consequently, any weakness in agriculture would impact not only farmers’ incomes but also rural demand, consumption, and overall economic activity.
In the current climate, agricultural production is already under pressure due to the oil crisis, alongside rising fertilizer and pesticide prices. A rainfall deficit could create difficulties for affected farmers.
Last year, food inflation was very low due to a good harvest and a high base effect. Oilseeds and pulses—two crop categories highly sensitive to price fluctuations—are cultivated in states like Maharashtra, Karnataka, Gujarat, Madhya Pradesh, and Rajasthan, which are particularly vulnerable to weak monsoon winds.
This inflationary phase presents a policy challenge for the Reserve Bank of India as well; while there is a need to accelerate economic growth, keeping rising prices in check is equally critical.
The decision regarding interest rates at the Monetary Policy Committee (MPC) meeting in August will largely depend on current inflation trends. While the government has made efforts to control prices through the tax regime and supply management, the most pressing need now is to boost agricultural production, ensure the adequate availability of essential commodities, and strengthen the supply chain.
If effective measures are not taken in time, food inflation could erode the purchasing power of the general public and impact the pace of economic growth. Striking this balance will be the ultimate test of India’s economic stability in the near future.
(This is an opinion piece. Views expressed are the author’s own.)
World Bank Income Classification: Why India Hasn’t Moved Up Yet
Follow The Raisina Hills on WhatsApp, Instagram, YouTube, Facebook, and LinkedIn
